Question

A currently callable bond has a non-refundable provision written into the indenture; explain how this impacts the company’s ability to call the bond, if at all.

Answer #1

Callable bond is a type of bond that can be recalled or retired by the company (lets say if interest rates decline, its in the interest of the firm to retire high cost funding sources and go for low cost sources)

A non-refundable provision means that the firm can't call back the bond for a certain time frame and also that it can't be retired from the proceeds generated through issuance of new low cost bonds. However, it can be called through funds generated from internal / organic sources.

Discuss why investors dislike a call provision in the bond
indenture? How does this affect the yield on a callable bond?

Carolina issued a 15-year semi-annual non-callable bond four
years ago. Bond has a $1,000 face value, coupon rate of 6% and it
currently sells for $945. Carolina needs to issue 10-year
semi-annual note. Note will be non-callable and is expected to get
the same credit rating as outstanding bond issue. If Carolina wants
to issue and sell new note at par, find approximate coupon rate
that needs to be assigned to the note. (Hint: similar bonds/notes
should be providing approximately...

A company currently has an 8 years bond that is callable in 3
years from today with a call premium of 1%. This bond annual coupon
rate is 9% paid semi-annually and it is currently selling at $1,020
per share. What is the bond annual yield to call and the bond
annual yield to maturity? Also, if general interest rate is
expected to remains unchanged, based on comparison between yield to
call and yield to maturity that you have calculated,...

A company currently has an 8 years bond that is callable in 3
years from today with a call premium of 1%. This bond annual coupon
rate is 9% paid semi-annually and it is currently selling at $1,020
per share. What is the bond annual yield to call and the bond
annual yield to maturity? Also, if general interest rate is
expected to remains unchanged, based on comparison between yield to
call and yield to maturity that you have calculated,...

Company currently has a nine yrs bond that is callable in four
yrs from today with a call premium of 1%. This bond annual coupon
rate is 10% paid semi-annually and it is currently selling at
$1,120 per share. What is the bond annual yield to call and the
bond annual yield to maturity? Also, if general interest rate is
expected to remains unchanged, based on comparison between yield to
call and yield to maturity that you have calculated, do...

A company currently has a 10 years bond that is callable in 2
years from today with a call premium of 1%. This bond annual coupon
rate is 3% paid semi-annually and it is currently selling at $985
per share. What is the bond annual yield to call and the bond
annual yield to maturity? Also, if general interest rate is
expected to remains unchanged, based on comparison between yield to
call and yield to maturity that you have calculated,...

Suppose GM has an 8% coupon rate, 30-year maturity, callable
coupon bond currently selling for 115.0 and is callable 10 years
from now at a call price of 110.0. What is the yield to call (YTC)
for the bond? (Round to two decimal places)

A $100 par value non-callable bond has 4% semiannual coupons and
is redeemable at $103 after 20 years. The bond is currently selling
at $105.
a.) Find the yield to maturity of the bond convertible
yearly.
b.) If coupons can be reinvested at 4.5% compounded
semiannually, find the 20-year holding-period yield convertible
yearly. Compare this with the answer obtained in a.
PLEASE SHOW ALL WORK BY HAND, WITHOUT USING A FINANCE CALCULATOR
OR EXCEL. THANK YOU.

If a bond has high positive convexity:
It must be callable.
It can be callable but must be trading above its call
price.
The investor benefits from large changes in interest rates,
compared to how an otherwise similar low convexity bond would have
performed.
The investor is hurt by large changes in interest rates,
compared to how an otherwise low convexity bond would have
performed.
Duration provides a precise estimate of the bond’s interest
rate risk

you are a financial analyst hired to value a new 30_year
callable ,convertible bond .the bond has a 6% coupon payable
annually .the conversion price is 125.the stock currently sells for
35.the stock price is expected to rise by 15% per year.the bond is
callable at 1100.the required return on the bond is 10%
calculate the straight bond value
calculate the conversion value
how long would it take for the conversion value to exceed a call
price

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