Five Years Ago, Raleigh Corporation Issued $5 Million in 20-Year

Multiple Choice

Five years ago, Raleigh Corporation issued $5 million in 20-year bonds, face value of $1000 and interest at 10% compounded semi-annually, paid twice a year. Interest rates have dropped to 8%. The bonds had a call provision that allowed Raleigh to buy them back at 102.5% of face. Ignoring issuing costs, what is the difference between the total exercise price and the fair value of the bonds?

A) Save $61,840
B) Save $130,070
C) Save $174,340
D) Save $739,602
E) Lose $1,063,160