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 the 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.
What was the call price at issue? [Calculator acceptable]
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 Canada bonds are yielding 4.9%.
What is the current call price? [Calculator acceptable]
Would ABC Company consider calling the bond now? [Calculator acceptable]