Final answer:
The question covers bond valuation, focusing on Carson Industries' semiannual coupon bond issued last year which is trading above its par value due to current market conditions and the bond's relatively high coupon rate.
Step-by-step explanation:
The question deals with the concept of bond valuation in finance. Last year, Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Presently, the bond can be called in 6 years at $1,075 but is selling for $1,280 on the market. coupons are the interest payments made to the bondholders, and the semiannual coupon means that these payments are made twice a year. The fact that the bond sells for $1,280, which is above the par (face) value, indicates that it is selling at a premium. this premium could be reasoned by the current market interest rates potentially being lower than the coupon rate of the bond, hence, making this bond more attractive to investors looking for higher yield.
All these elements reflect the dynamics of bond pricing in the market. Specifically, when interest rates fall, existing bonds with higher coupon rates become more valuable, selling for more than their face value. Conversely, should interest rates rise, existing bonds with now lower relative coupon rates will sell at a discount to their face value.
The 'callable' feature of the bond means the issuer can redeem the bond before its maturity after a specified date, here after 6 years, at the set call price of $1,075. This feature allows the issuer to refinance the debt at a lower interest rate if market conditions are favorable.