Call Premium A 4.5 percent corporate coupon bond is callable in five 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?

Question

Quizplus · Accepted Answer

The call premium is one year of coupon payments which is 4.5% of $1,000, or $45. Therefore, the issuer would have to pay the bondholder the par value of $1,000 plus the call premium of $45 if they choose to call the bond. Thus, the price paid to the bondholder if the issuer calls the bond is $1,000 + $45 = $1,045. Therefore, the correct answer is D.

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