"Draw the picture of the bond's cash flows assuming it will be called in one year. Compute the IRR on the cash flows ie. solve for y $ Coup + $ CPrc PO = --- E . . . . . . . . . ... 70"
a) Create a timeline with 0 at the present time and one year in the future
b) Write $70 at the one-year mark to represent the bond's cash flows
c) Draw an arrow pointing from the present time to the one-year mark, indicating the call option
d) Calculate the IRR of the cash flows to determine the yield at which the bond would be called