Explore BrainMass
Share

# Price of a bond with call provision

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

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?

#### Solution Preview

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