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

question 88

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 call of this bond when it is released?

• A)5.60%
• B)4.11%
• C)6.66%
• D)2.94%

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Definitions:

Utility Function

A mathematical representation of how consumers derive satisfaction or utility from consuming goods and services.

Goods

Tangible products or items that satisfy human wants or needs.

Budget Constraint

An economic model that represents all the combinations of goods and services that a consumer can afford with a fixed amount of income.

Goods

Physical items that are produced and consumed by individuals or businesses to satisfy needs or wants.