1. 1. XYZ Corporation issued 20-year, non-callable bonds with an annual coupon of 6.5% at their face value of $1,000 a year ago. Today, the market interest rate on these bonds is 5.0%. What is the current price of the bonds, given that they are now 18 years away from maturity? Show work, 2 decimal places.

2. 2. Your friend tells you that he wrote in his notes in his finance class that "a call provision gives bondholders the right to demand or "call" the repayment of a bond. Typically, companies call bonds if interest rates go up and I won't call you if interest rates go down." Are his notes correct? Explain.

3. 3. You overhear two of your friends having a friendly discussion about a topic you just covered in class.

Your friend A says, “Convertible bonds and bonds with warrants should have higher coupon rates than straight bonds that have similar ratings, since investors may lose income streams if the bonds are converted.”

Your friend B answers; "You are wrong. I read the opposite somewhere. Convertible bonds and bonds with warrants have lower coupon rates than straight bonds that have similar ratings."

• Who is right and why?

Answer rating: 100% (QA)

To calculate the current price of the bonds we can use the present value formula The present value of the bonds cash flows is the sum of the present v... View the full answer