Reference no: EM132977610

Question - At the beginning of 2020, ABC Corp. issued (sold) $100 million in 5-year callable bonds at a par value of $1,000 that pay a 6.0% annual coupon rate that is paid semiannually. The bonds are callable after 2 years for a call premium equal to one annual coupon payment. During 2020, interest rates decreased and ABC's bonds are now trading for $950.00 at the beginning of 2021.

a. What is the amount of the semiannual interest payment you can expect to receive from investing in this bond?

b. What is the new yield to maturity (YTM) of the bonds at the beginning of 2021? Input the answer and the time value of money inputs in the correct spaces below. Adjust the inputs for periodic compounding, but give the answer as an annual rate:

PMT=

FV=

PV=

N=

YTM=

c. What is the new yield to call (YTC) of the bonds at the beginning of 2021? Input the answer and the time value of money inputs in the correct spaces below. Adjust the inputs for periodic compounding, but give the answer as an annual rate:

PMT=

FV=

PV=

N=

YTC=

d. Should investors expect to receive YTC or YTM? Why?

e. How much will the firm save or lose each year in interest if the existing bonds are called and reissued? You may ignore any costs involved in calling/re-issuing the bonds.