Stature Technologies plans to issue£100 million of bonds with a face value of £100,000, coupon rate of 4.125 percent and 10 years to maturity. The current yield to maturity of these bonds is4 per cent. In one year, the yield to maturity on the bonds will be either 6per cent or 3.75 per cent with equal probability. Assume investors arerisk-neutral.

1 If the bonds are non-callable, what is the price of the bonds today? 

2 If the bonds are callableone year from today at 115 per cent of face value, will their price be greater than or less than the price you computed in (1)? Why? 

3 If Stature Technologies wished to issue the bond (without call option) in Abu Dhabi as uk, explain, using a diagram, how you would construct the Islamic bond. 

Answer rating: 100% (QA)

1 If bond is the prices the bond tud... View the full answer