Question

A 4.5 percent corporate coupon bond is callable in five 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?

Answer 1

Price paid to the bondholder $1045

Step-by-step explanation:

given data:

Par value = $1000

percentage of corporate coupon = 4.5%

call premium is for one year coupon payments

call premium = 1 year coupon

call premium = 1000 x 4.5% = 45

Price paid to the bondholder = Par value + call premium

putting all value to get the total price to be paid to bondholder

Price paid to the bondholder = 1000 + 45 = $1045