Question

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030,plus any accrued interest.The additional $30 is called the:_____________A) dirty priceB) redemption valueC) call premiumD) original-issue discountE) redemption discount

Answer 1

Answer:

C) call premium

Explanation:

These additional $30 are called the call premium. They are basically a fee that the issuer pays to the holder when they break the agreed-upon time frame and recall the bond at an earlier date. Basically, it is a payment form of saying sorry redeeming the asset earlier than expected. This call premium is applied to a variety of different assets such as bonds and preferred shares, among others.