Question

A 4.9 percent corporate coupon bond is callable in 10 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

$1,049

Step-by-step explanation:

Data given in the question

Par value = $1,000

Interest rate = 4.9%

Time period = 10 years

So, by considering the above information, the price paid to the bond holder is

= Par value + Par value × rate of interest

= $1,000 + $1,000 × 4.9%

= $1,000 + $49

= $1,049

Hence. the price paid to the bond holder is $1,049