Hurley Co. has outstanding $420 million face amount of 9% bonds that were issued on January 1, 2007, for $409,500,000. The 20-year bonds mature on December 31, 2026, and are callable at 102 (i.e., they can be paid off at any time by paying the bondholders 102% of the face amount). **Required:****a. Under what circumstances would Hurley Co. managers consider calling the bonds?**Management of Hurley Co. would be interested in calling the bonds if interest rates **decrease** enough so that the cost of a new borrowing to pay off the old bonds at a premium would be **less** than the cost of continuing to pay the interest rate on the old bonds.

Calculate the premium as follows: Premium = Call price - Face value Premium = 102 - 100 Premium = 2Management of Hayden Co. would be interested in calling the bonds if interest rates decrease enough so that the cost of a new borrowing to pay off the old bonds at a 2% call premium would be less than the cost of continuing to pay the 9% stated interest rate on the old bonds.

Business

Finance

Hurley Co. has outstanding $420 million face amount of 9% bonds that were issued on January 1, 2007, for $409,500,000. The 20-year bonds mature on December 31, 2026, and are callable at 102 (i.e., they can be paid off at any time by paying the bondholders 102% of the face amount).

Hurley Co. has outstanding $420 million face amount of 9% bonds that were issued on January 1, 2007, for $409,500,000. The 20-year bonds mature on December 31, 2026, and are callable at 102 (i.e., they can be paid off at any time by paying the bondholders 102% of the face amount).

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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