LO3

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	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?

Group of answer choices

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

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

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

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

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

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