Callable Bond • Example: Suppose an 8% coupon, 30-year maturity semi-annual bond sells for $1,150 and...

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Question

Callable Bond • Example: Suppose an 8% coupon, 30-year maturity semi-annual bond sells for $1,150 and is callable in 10 years

Answer 1

Answer #1

rate positively ..

A bond will be callable if the current price is higher than the call price.

We have to compute the current price using financial calcualtor

Put in calculator -

FV		1000
PMT	1000*8%/2	40
I	8%/2	4.00%
N	=(30-10)*2	40

Compute PV		($1,000.00)

Price =		$1,000.00

Since price is $1000 which is lower than the call price therefore issure will not repurchase the bond.

Answer 2

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