Ranger Inc. would like to issue new 20-year bonds. Initially, the plan was to make the bonds non-callable. If the bonds were made callable after 5 years at a 5% call premium, how would this affect their required rate of return?

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When a bond is made callable, the issuer has the option to pay off the bond early, which means the bondholder could potentially lose out on interest payments. As a result, callable bonds are considered riskier than non-callable bonds, leading to an increase in the required rate of return. Additionally, the call premium also means that the issuer would have to pay a premium to redeem the bond early, which provides an incentive for the bondholder to demand a higher required rate of return.