Return to the valuation of the Bermudan-style three-year 4.25% annual coupon bond callable at par one year

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Return to the valuation of the Bermudan-style three-year 4.25% annual coupon bond callable at par one year and two years from now as depicted in Exhibit 12. The one-year, two-year, and three-year par yields are 2.500%, 3.000%, and 3.500%, respectively, and the interest rate volatility is 10%.


Assume that nothing changes relative to the initial setting except that the bond is now callable at 102 instead of 100. The new value of the callable bond is closest to:

A. 100.000.

B. 102.000.

C. 102.114.

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Fixed Income Analysis

ISBN: 9781119850540

5th Edition

Authors: Barbara S. Petitt

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