When is call option used and what is call price

CFA Level I
#1

Please can someone explain what is call price mean

#2

Suppose that a company issues a 10-year, $1,000 par, 6% coupon, semiannual pay bond that is callable after 5 years at 104.

The call price is 104% of par, or $1,040. Should the company choose to exercise the call option, that’s the price that they’ll have to pay the bondholder to call the bond.

Call options are used when interest rates drop – that’s when the option is in the money – so that they can pay off the bonds early and issue new bonds with a lower coupon.

#3

Thanks I got it

#4

My pleasure.

Good to hear.