Consider a three$-$year bond with $8\%$ annual coupons and a face value of $100.$ Assume that

the bond is callable and may be called at t$=1$ with a call price of $101\mathrm{.}80.$ Assume that if the

bond is called at t$=1,$ then the investor will invest in a new two year bond with a face value of

$$101\mathrm{.}80$ and a coupon rate equal to the market interest rate at t$=1.$ If the market rate of interest

at t$=1$ is $6\%,$ which of the following statements is incorrect?

A$.$ The borrower will call the bond at t$=1.$

B$.$ The investor will achieve a lower rate of return over the three year investment horizon

compared to what would have been achieved if they had initially invested in a three year noncallable

bond with $8\%$ annual coupons.

C$.$ If the call price had been initially set below $101\mathrm{.}8,$ the probability of the bond being called

would be lower.

D$.$ The call price is more than the face value because the investor requires some compensation

in the event of the bond being called.

E$.$ If the market interest rate at t$=1$ is $8\%,$ the borrower will not call the bond.