McCarty Manufacturing Company makes baseball equipment. The company decides to issue a callable bond that it expects

Question:

McCarty Manufacturing Company makes baseball equipment. The company decides to issue a callable bond that it expects to sell for $840 per bond. If the bond is a twenty-year semiannual bond with a 6% coupon rate and a current yield to maturity of 7%, what is the cost of the option attached to the bond? (Assume $1000 par value).

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...