Consider the following information about the current interest rate environment 1 year spot rate 4 0000 2 year spot rate 4 5113 3 year spot rate 5 0341 Binomial Interest Rate Tree Year 0 Year 1 Year 2 7 3734 5 5286 4 0000 6 0368 4 5264 4 9425 Additionally, a three year callable bond with a 6 annual ...

Binomial roce 73934 5 52861 60366 49Y 4 S2 ...

Consider the following information about the current interest rate environment: 1-year spot rate: 4.0000% 2-year spot rate:

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Consider the following information about the current interest rate environment:

1-year spot rate: 4.0000%
2-year spot rate: 4.5113%
3-year spot rate: 5.0341%

Binomial Interest Rate Tree:

Year 0 Year 1 Year 2

7.3734%

5.5286%

4.0000% 6.0368%

4.5264%

4.9425%

Additionally, a three-year callable bond with a 6% annual coupon is trading at 101.8386. If interest rate increases by 30 bps, the bond price will become 101.2545; if interest rate decreases by 30 bps, the price will be 102.2179.

Answer the following question:

What is the value of the option embedded in the callable bond?

Related Book For answer-question

Human Anatomy and Physiology

ISBN: 978-0321927040

10th edition

Authors: Elaine N. Marieb, Katja Hoehn

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Posted Date: May 18, 2021 05:45 AM

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Consider the following information about the current interest rate environment: 1-year spot rate: 4.0000% 2-year spot rate:

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Human Anatomy and Physiology

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