On January 2, 2018, the Tenenhouse Financial Corporation sold a large issue of Series A $1,000
denomination bonds. The bonds had a stated coupon rate of 6% (annual), had a term to maturity
of four years, and made annual coupon payments (on December 31). Market conditions at the
time were such that the bonds were sold at their face value.
During the ensuing two years, market interest rates fluctuated widely, and by January 2, 2020,
the Tenenhouse bonds were trading at a price that provided an annual yield of 10%.
Tenenhouse's management was considering purchasing the Series A bonds in the open market
and retiring them; the necessary capital was to be raised by a new bond issue—the Series B
bonds. Series B bonds were to be $1,000 denomination coupon bonds with a stated coupon rate
of 8% (annual), making annual coupon payments (on December 31), and a three year term.
Management felt that these bonds co