Question

"A bond that was originally sold at par is now trading in the market at a premium. The bond is called at par. This action will benefit the:"

Answer 1

Answer:  a. Issuer

Explanation:

When bonds trade at a premium, it means that the yield has fallen below the coupon rate which means that interest rates have dropped. Companies can take advantage of this to reissue new bonds at the lower interest rate so that they can save on costs.

Bonds usually have a call provision which would enable the issuer to call the bond in and pay the holder at the par value plus interest repayments at the lower yield which they will do in this case. They will then reissue new bonds at a lower rate.