You are the single owner of the firm, DavidLee Co, producing semi-conductor for IT firms mainly in Silicon Vally, California. Your firm issued its callable 8.0 %, 20-year bond 10 years ago. The bond is callable at the price that offers an equivalent yield to a Canada bond plus 0.15%. At the issue, it was priced to sell at par. At the issue, a 10-year Canada bond yield was 5.25%. Currently, the bond's yield to maturity is 5%, and the equivalent maturity Canada bonds yield also 5.0%. The bond pays interest annually. Will you consider calling the bond now? Why?
You are the single owner of the firm, DavidLee Co, producing semi-conductor for IT firms mainly in Silicon Vally, California. Your firm issued its callable 8.0 %, 20-year bond 10 years ago. The bond is callable at the price that offers an equivalent yield to a Canada bond plus 0.15%. At the issue, it was priced to sell at par. At the issue, a 10-year Canada bond yield was 5.25%. Currently, the bond's yield to maturity is 5%, and the equivalent maturity Canada bonds yield also 5.0%. The bond pays interest annually. Will you consider calling the bond now? Why?
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
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