What is the cost of the call provision to the firm if the bond sells for $1,000 today?

Question

Quizplus · Accepted Answer

The call price is $1,000 plus the call premium of $30 per bond, for a total call price of $1,030. The bond is currently selling for $1,000, so the call provision would cost the firm $1,030 - $1,000 = $30 per bond. Since the bond has a par value of $1,000, the cost of the call provision as a percentage of the par value is $30/$1,000 = 3%. Therefore, the cost of the call provision to the firm is $77.43 per $1,000 face value bond ($1,000 x 3% = $30, and $30 x 2.5814 = $77.43).

What Is the Cost of the Call Provision to the Firm