Ask Question
1 October, 00:14

Will owns a bond with a make-whole call provision. The bond matures in 13 years but is being called today. The coupon rate is 8.25 percent with interest paid semiannually. What is the current call price if the applicable discount rate is 7.75 percent and the make-whole call provision applies

+3
Answers (1)
  1. 1 October, 00:34
    0
    Total Current Call Price = $1,668.36

    Explanation:

    Calculation of Present value of bond's coupon payment that is lost by premature termination of bond:

    PV = C / i [1 - 1 / (1 + i) ^n]

    C = Coupon amount = 1,000 x 8.25% = 82.50 / 2 = 41.25

    n = Number of payment period = 13 x 2 = 26

    i = Rate of Interest = 7.75 / 2 = 3.875%

    PV = 41.25 / 0.03875 [1 - 1 / (1 + 0.03875) ^26] = $668.36

    Add: Face value = 1,000

    Total Current call price = 668.36 + 1,000 = $1,668.36
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Will owns a bond with a make-whole call provision. The bond matures in 13 years but is being called today. The coupon rate is 8.25 percent ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers