A 4.25 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?

A 4.25 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?

 

Answer :- $ 1042.5

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Price Paid to the Bondholder if the Issuer Calls the Bond = Principal Amount + Call Premium

= 1000 + ( 1000 * 4.25%)

= 1000 + 42.5

= $ 1042.5