Call options are also frequently attached to bonds, making them callable at the option of the issuer.
Consider a ﬁrm that just issued two sets of bonds: One is callable, has an 8% coupon rate, 10 years
to maturity, and can't be called in the ﬁrst ﬁve years; the second is non-callable, has an 8% coupon
rate, 10 years to maturity, and is identical to the ﬁrst bond in every way except for the call option.
Suppose the non-callable bonds are sold for $1,000 each. Will the callable bonds sell for more or
less? Who "purchases" the option in this case and who "sells" it?

Question

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The Answer of Call options are also frequently attached to bonds, making them callable at the option of the issuer.
Consider a ﬁrm that just issued two sets of bonds: One is callable, has an 8% coupon rate, 10 years
to maturity, and can't be called in the ﬁrst ﬁve years; the second is non-callable, has an 8% coupon
rate, 10 years to maturity, and is identical to the ﬁrst bond in every way except for the call option.
Suppose the non-callable bonds are sold for $1,000 each. Will the callable bonds sell for more or
less? Who "purchases" the option in this case and who "sells" it?

Call Options Are Also Frequently Attached to Bonds, Making Them