Bond Features Maturity (years) 5

Face Value = $1,000

Coupon Rate = 5.00%

Coupon dates (Annual) Market interest rate today 5.00%

Time to call (years) 3 Price if Called $1,050.00

Market interest rate in Year 3 is 2.00%

The above bond is callable in 3 years. When the bond is issued today, interest rates are 5.00% . In 3 years, the market interest rate is 2.00% . Should the firm call back the bonds in year 3 and if so, how much would the firm save or lose by calling back the bonds?

yes it should call back the bonds, it will save $8.25

yes it should call back the bonds, it will save $7.83

no it should not call back the bonds, it will lose $7.83

yes it should call back the bonds, it will save $8.49

no it should not call back the bonds, it will lose $8.25

no it should not call back the bonds, it will lose $8.49