Suppose your organization has issued a 30 year, 1,000,000 par-value bond with semi-annual coupons of 7%.25 years after issuance the owner of the bond offers to let your organization redeem the bond early. You can turn down the offer and redeem after 30 years.1. Should you take the offer if:(a) the market interest rate is 6.5%(b) the market interest rate is 7.5%(c) the market interest rate is 7%(d) the market interest rate is 6.5% and redemption today requires a redemp- tion of 1,200,0002. What general rule for early redemption can you make?

Bond’s present value: It is the sum of discounted value of the intermediary and terminal Cash Flow…

Answered: Suppose your organization has issued a…

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter14: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 6DTM

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Suppose your organization has issued a 30 year, 1,000,000 par-value bond with semi-annual coupons of 7%.

25 years after issuance the owner of the bond offers to let your organization redeem the bond early. You can turn down the offer and redeem after 30 years.

1. Should you take the offer if:

(a) the market interest rate is 6.5%
(b) the market interest rate is 7.5%
(c) the market interest rate is 7%
(d) the market interest rate is 6.5% and redemption today requires a redemp- tion of 1,200,000

2. What general rule for early redemption can you make?

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