Call Premium 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 bondholder will receive the call premium of one year of coupon payments, which is 5.5% x $1,000 = $55. Therefore, the price paid to the bondholder if the issuer calls the bond is $1,000 + call premium of $55 = $1,055. Option D is the correct choice.

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