A call premium is often equal to one year's interest payments, if the call occurs during the first year, and it declines each year thereafter.

Question

Quizplus · Accepted Answer

This statement is true. The call premium is often calculated as the present value of all remaining interest payments plus a premium equal to one year's interest payments. If the call occurs during the first year, then the premium will be equal to one year's interest payments. However, if the call occurs in later years, the premium will be lower because there are fewer remaining interest payments to be made.

A Call Premium Is Often Equal to One Year's Interest