A firm is issuing new 25-year bonds. They originally planned to make the bonds non-callable. If the bonds were made callable after 5 years at a 5% call premium, how would this affect the coupon offered on the bond? 

a. There is no reason to expect a change in the coupon rate. 

b. The coupon would likely be lower because the bond would then be less risky to a bondholder.

c. The coupon would likely be higher because the bond would then be more risky to a bondholder. 

d. It is impossible to say without more information.

e. Because of the call premium and protection period, the coupon rate would likely be lower.

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The detailed answer for the above question is provided below ANSWER The correct answer is e Because ... View the full answer