A 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? (Assume annual interest payments.)

Question

Quizplus · Accepted Answer

The price paid to the bondholder if the issuer calls the bond would be the par value ($1,000) plus the call premium, which is one year of coupon payments (5.5% of $1,000 = $55). Therefore, the total amount paid would be $1,000 + $55 = $1,055.

A 55 Percent Corporate Coupon Bond Is Callable in Four Years