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Price of a bond with call provision

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Zabberer Corp bonds pay coupon rate of 12% annual interest and maturity value of $1000. Bonds are scheduled to mature at end of 14 years. Company has the option to call the bonds in 8 years at a premium of 12 % above maturity value
You believe company will exercise its option to call the bonds at that time. If you require a pretax of 10% on bonds of this risk, how much would you pay for one of these bonds today?

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Zabberer Corp bonds pay coupon rate of 12% annual interest and maturity value of $1000
Bonds are scheduled to mature at end of 14 years
Company has the option to call the bonds in 8 years at a premium of 12 % above maturity value
You believe company will exercise its option to call the bonds at that time. If you require a
pretax of 10% on bonds of this risk, how much would you pay for one of these bonds ...

Solution Summary

The solution calculates the price of a bond with a call provision.

$2.19
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