Call Options Are Frequently Attached to Bonds,making Them Callable at the Option

question 89

Essay

Call options are frequently attached to bonds,making them callable at the option of the issuer.Consider a firm that just issued two sets of bonds:
One is callable,has a 7 percent coupon rate,15 years to maturity,and cannot be called during the first three years; the second is noncallable,has a 7 percent coupon rate,15 years to maturity,and is identical to the first bond in every way except for the call option.Suppose the noncallable bonds are sold for $1,000 each.Will the callable bonds sell for more or less than $1,000?
Who "purchases" the option in this case and who "sells" it?

---

Definitions:

Pay Equity

A principle of employee compensation where individuals are paid equally for work of equal value, without discrimination based on gender or other factors.

Simple Random Sample

A subset of a statistical population in which each member has an equal probability of being chosen.

Faculty Members

Individuals who are members of the teaching or academic staff at an educational institution.

Mean

The arithmetic average of a set of numbers, calculated by adding all the numbers in the set and dividing by the count of those numbers.