Economics · Bonds with Optionality
Which of the following statements most accurately describes the 'Call Premium' associated with callable bonds?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The discounted value of the bond's future cash flows that exceeds its par value.
- 2The compensation amount paid by the issuer to the bondholder if the bond is redeemed before its scheduled maturity date.✓
- 3The extra price paid by the investor when a bond is purchased in the open market above its face value.
- 4The additional amount of interest paid semi-annually on a bond compared to a risk-free government bond.
Correct answer
The compensation amount paid by the issuer to the bondholder if the bond is redeemed before its scheduled maturity date.
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