The callable annuity rate can be calculated as:
A) × Hurdle Rate
B) × Hurdle Rate
C) × Cost of Capital

Question

The callable annuity rate can be calculated as:
A) × Hurdle Rate 
B) × Hurdle Rate 
C) × Cost of Capital

Quizplus · Accepted Answer

The callable annuity rate is calculated as the coupon rate on a callable bond assuming the issuer will call it at the first call date. It is calculated using the formula:

Callable annuity rate = (Coupon rate x Present value factor of an annuity due) / Present value factor of a callable bond

Therefore, option B, which contains the correct formula, is the best choice.

The Callable Annuity Rate Can Be Calculated As