If current interest rates are 9%, which bond would you expect to be called? Explain.

Callable bonds | Business & Finance homework help

If current interest rates are at 9%, then you would expect a bond with a coupon rate above 9% to be called. This is because the issuer of the bond can call it back and reissue it with a lower coupon rate that reflects the current market interest rates, thus saving them money in the long run. For example, if a bond has a 10% coupon rate and current interest rates are 9%, then it makes economical sense for the issuer to redeem this bond (at its face value) and issue another one with an adjusted coupon rate of 9%.