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11 April, 15:09

A 4.5 percent corporate coupon bond is callable in five 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?

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  1. 11 April, 17:42
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    Price paid to the bondholder $1045

    Explanation:

    given dа ta:

    Par value = $1000

    percentage of corporate coupon = 4.5%

    call premium is for one year coupon payments

    call premium = 1 year coupon

    call premium = 1000 x 4.5% = 45

    Price paid to the bondholder = Par value + call premium

    putting all value to get the total price to be paid to bondholder

    Price paid to the bondholder = 1000 + 45 = $1045
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