If the issuer calls the bond, then issuer must pay a price of Principal + Call premium to the bondholder.
Call premium = one year coupon payment = 7.75% of 1000 = $77.5
So, Price paid by issuer = 1000 + 77.5 = $1077.5.
So, option A is correct.
QUESTION 2 Call Premium A 7.75 percent corporate coupon bond is callable in four years for...
A 3.75 percent corporate coupon bond is callable in four years for a call premuim 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?
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Mrs. G is looking to invest in a corporate bond, or a callable corporate bond. She has asked you to explain each and how they differ. Assume the following Par = $1,000, Coupon Rate = 5%, Market Rate = 6%, Remaining Term = 9 years, Remaining Term to Call = 4 years, typical call premium applies. • Give a write up comparing and contrasting the corporate bond and the callable corporate bond. • Use common models found in the text...