1. A 15 year callable bond can be called in five years at a price of $1100. Bond has a par value of $1000, please $100 annual coupon, and it’s yield to call is 8.5%. What is bonds current price?
2. How is the NPV rule related to the goal of maximizing shareholder wealth, and under what conditions would you expect the NPV and IRR rules to return the same accept / reject decision? Identify one problem with using IRR as part of this decision-making process. What value might the financial decision maker gain by adding the profitability index to the decision-making process?