A plain-vanilla note from a particular issuer carries a coupon rate of 7%. The firm issues a CLN with a coupon of 4%. The CLN contains an implicit call option on the S&P GSCI (currently at $1,500) with a strike price set 10% out-of-the-money, at 1,650. How much of coupon income is the firm sacrificing to carry a CLN with the embedded call option? Please assume that a principal payment of the note is $1,000,000.

Answer rating: 100% (QA)

distribution as principal payment principal1 SP GSCI value at maturitystrike ... View the full answer