What will bondholders receive as a result of the Pennsylvania Power Company refunding its 6 1/4% bonds?

When a company like Pennsylvania Power Company refunds its bonds, it typically does so to refinance its debt at more favorable terms, which can include lower interest rates. In this case, bondholders are entitled to receive the current market value of the bond plus any interest that has accrued since the last interest payment. The value of $1,067.50 reflects the deeper understanding that bonds can trade at premiums due to their higher than market interest rate compared to current rates.

This means that when bondholders receive $1,067.50, it covers both the partial premium they receive for holding a bond with a higher coupon rate and the accrued interest earned on the bond. The amount indicates that the bond is sought after due to its rate and security, allowing bondholders to benefit from this financial transaction. The accrued interest part is important because bondholders deserve to be compensated for the interest that accrued on the bond prior to the transaction's completion.

Other options either reflect incorrect amounts or incorrect circumstances regarding interest payments. For instance, the choice valuing the bond without accrued interest does not align with standard refunding practices where accrued interest must be compensated as bondholders hold the bond until the refunding occurs. Thus, the correct answer comprehensively encompasses both the bond's value