Question: Bond Features Maturity (years) Face Value Coupon Rate Coupon dates (Annual) Market interest rate today Time to call (years) Price if Called Market interest rate

Bond Features Maturity (years) Face Value Coupon Rate Coupon dates (Annual)

Bond Features Maturity (years) Face Value Coupon Rate Coupon dates (Annual) Market interest rate today Time to call (years) Price if Called Market interest rate in Year 3 $1,000 4.00% 4.00% 3 $1,040.00 The above bond is callable in 3 years. When the bond is issued today, interest rates are 4.00% . In 3 years, the market interest rate is 2.00% . Should the firm call back the bond in year 3 and if so, how much would the firm save or lose by calling back the bonds

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