Showbiz, Inc., has issued eight-year bonds with a coupon of 6.375 percent and semiannual

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QUESTION:

Showbiz, Inc., has issued eight-year bonds with a coupon of 6.375 percent and semiannual coupon payments. The market’s required rate of return on such bonds is 7.65 percent.

a. What is the market price of these bonds?

b. If the above bond is callable after five years at an 8.5 percent premium on the face value, what is the expected return on this bond?


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