Call Premium : A 6.25 percent corporate coupon bond is callable in 7 years for a

Question

Call Premium: A 6.25 percent corporate coupon bond is callable in 7 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?

Compute Bond PriceCompute the price of a 6.5 percent coupon bond with 20 years left to maturity and a market interest rate of 7 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond?

Yields of a BondA 3.75 percent coupon municipal bond has 17 years left to maturity and has a price quote of 102.80. The bond can be called in eight years. The call premium is one year of coupon payments. Compute and discuss the bond’s current yield, yield to maturity, taxable equivalent yield (for an investor in the 30 percent marginal tax bracket), and yield to call. (Assume interest payments are semiannual and a par value of $10,000.)

Explanation / Answer

Bond call price:

= Face value+Call premium

= $1,000+$1,000×6.25%

= $1,062.50

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