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Question: We discussed call provisions in class. Suppose that your firm has a $1,000,000 callable bond issue outstanding (meaning they sold 1000, $1,000 par value bonds in the past and are currently making payments on them.) The issue is paying a 6% coupon rate and won't mature until for another 10 years. Interest rates in the market have fallen recently and firms with comparable risk profiles are issuing similar bonds at 4%.

At what call premium (additional % added to face value) would you be indifferent between calling the bonds or not assuming there are 10 years remaining until maturity?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92805500

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