A Company Issues a Callable (At Par) 20-Year, 5% Coupon

question 42

Multiple Choice

A company issues a callable (at par) 20-year, 5% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $102 per $100 of face value. What is the yield to maturity of this bond when it is released?

• A) 2.40%
• B) 4.84%
• C) 5.60%
• D) 6.66%

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Definitions:

Investing Activities

Transactions and events that involve the purchase or sale of long-term assets and other investments not included in cash equivalents.

Operating Activities

Business actions that are directly related to the production and delivery of goods and services, which are fundamental to the company’s operations.

Cash Flow Per Share

A measure indicating the amount of cash flow generated by a company on a per-share basis, useful for assessing financial performance and liquidity.

GAAP

A set of widely adhered-to accounting norms and guidelines for financial statements.