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Question
Ranger Inc. would like to issue new 20-year bonds. Initially, the plan was to make the bonds non-callable. If the bonds were made callable after 5 years at a 5% call premium, how would this affect their required rate of return?a. There is no reason to expect a change in the required rate of return.
b. The required rate of return would decline because the bond would then be less risky to a bondholder.
c. The required rate of return would increase because the bond would then be more risky to a bondholder.
d. It is impossible to say without more information.
e. Because of the call premium, the required rate of return would decline.
Answer
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