Asked by Andreea Polonic on May 26, 2024
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Sandia Corporation issued $2,000,000 worth of callable bonds paying 7% interest. The maturity date for the bonds was in 10 years. A year later, interest rates fell to 5%. The bonds were called and new bonds were sold at the 5% rate. How much did Sandia Corporation save by calling the bonds?
Callable Bonds
Bonds that have a provision that the issuer can repurchase, or call in, the bonds at specified dates if the board of directors authorizes the retirement (payoff) of the bonds before their maturity date.
Interest Rates
The cost of borrowing money, expressed as a percentage of the amount borrowed.
Maturity Date
The final day of a note on which the borrower (the maker of the note) pays the face value and any interest due to the holder of the note. The due date.
- Compute savings from issuing new bonds at a lower interest rate after calling old bonds.
Verified Answer
Learning Objectives
- Compute savings from issuing new bonds at a lower interest rate after calling old bonds.
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