Coke has corporate bond issue outstanding

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1. Coke has a corporate bond issue outstanding - it has 10 years remaining to maturity, semi-annual coupon payments, a coupon rate of 10% per year and a yield-to-maturity of 8.65% per year. The next coupon payment is three months away. Each bond has $1000 face value.

a. Price an individual bond.

b. Coke is replacing this bond issue to leverage a decrease in interest rates. Coke can call each bond for a 15% premium over face value. If a new 10-year bond issue can be made at par by Coke at the same yield-to-maturity of 8.65%, should Coke replace the bond?

Reference no: EM131603476

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