When ABC Company originally issued its callable 5.5%, 10-year bond, it was rated AA and priced to sell at par. The bond is callable at t he price that offers an equivalent yield to a Canada bond plus .15%. At that time, the credit spread over 10-year Canada bonds was .25%. The bond pays interest annually.
a. What was the call p rice at issue?
Now, 5 years later, the bond rating agencies have raised the bond rating to AAA and the bond’s yield to maturity is 5%. Equivalent-maturity Ca nada bonds are yielding 4.9%.
b. What is the current call price?
c. Would ABC Company consider calling the bond now?