Question

5.5 percent corporate coupon bond is callable in four years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond

Answer 1

Answer:

$1,055

Explanation:

Price paid to the bondholder = Principal + Call premium

Price paid to the bondholder = $1,000 + 5.5%*$1,000

Price paid to the bondholder = $1,000 + $55

Price paid to the bondholder = $1,055