McCarty Manufacturing Company makes baseball equip- ment. The company decides to issue a callable bond that it expects t

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McCarty Manufacturing Company makes baseball equip- ment. The company decides to issue a callable bond that it expects t

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McCarty Manufacturing Company makes baseball equip- ment. The company decides to issue a callable bond that it expects to sell for $840 per bond. If the bond is a twenty-year semiannual bond with a 6% coupon rate and a current yield to maturity of 7%, what is the option cost attached to the bond? Assume a $1,000 par value. Hint: Find the price of an equivalent bond without the call option.
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