Final answer:
To determine the cash needed to retire an 11.2S2021 bond early, analyze the current yield and market price relative to the bond's face value. Bonds with interest rates below the market rate are valued using present value calculations, indicating a purchase price lower than face value. The calculation suggests that the cash needed is $3,449,846, less than the face value.
Step-by-step explanation:
The question deals with the calculation required to retire an 11.2S2021 bond early, given its face value, yield, and market price. To calculate the cash needed to retire the bond early, we must understand the bond's price when the interest rate of the bond is less than the current market interest rate and consider the bond's yield. For example, if a bond with a face value of $1,000 is expected to make a payment of $1,080 (interest plus principal) in one year, and current market interest rates are at 12%, the present value of this bond would be $964. This means that the investor would not pay more than $964 for the bond, as $964 is the amount that would grow to $1,080 in a year at a 12% interest rate.
Applying this logic to the 11.2S2021 bond, we can surmise that if the yield is 11.7% and the bond's face value is $3,596,962, the cash needed to retire the bond early would be less than its face value, as market interest rates are higher. This information, aligned with the current price of $95.91 per $100 of face value, would indicate that the cash needed to retire the bond early is $3,449,846, which is the product of the scaled price and the face value of the bond.