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An option for financing is to call

/in /by

An option for financing is to call in the outstanding bonds and obtain
a loan with more favorable terms than the bonds. Presently the company has a 6% coupon bond that matures in 11 years. Interest is paid semiannually. What is the market price of a $1,000 face value bond if the interest rate is 12.9%? How much will it cost the company to call in 1,000 of these bonds? Is the strategy worth pursuing if the interest rate on a loan is 13%?

 
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