Vestors expect it will be called as soon as possible


Alpha Inc has a $1,000 par value bond that was issued ten years ago for a thirty year term. Interest rates were very high at that time and the bond's coupon rate is 22%. The relevant bond market interest rate is now 10%. All of Alpha's bonds have a call feature. It allows the company to pay off the bond anytime after the first fifteen years, but requires that bondholders be compensated with an extra year's interest at the coupon rate if such a payoff is exercised. What is the bond's market price assuming investors expect it will be called as soon as possible.

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Accounting Basics: Vestors expect it will be called as soon as possible
Reference No:- TGS075393

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