Table of Interest Rates: Time Period Oyly Oy2y 0v3y lyly 2yly Consider the following bond: Exactly...
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Table of Interest Rates: Time Period Oyly Oy2y 0v3y lyly 2yly Consider the following bond: Exactly 3 years to maturity 9.7% coupon rate, paid annually $100 par value Bond is callable in exactly 1 year for 101.5 and exactly 2 years for 100.5. 6. Suppose that there is zero volatility in interest rates. Restated, suppose that future interest rates equal current market expectations. What is the price of the callable bond? Round your answer to three decimal places. 3.00% Rate 3.00% 7. Now suppose that future interest rates are uncertain. Specifically, there is 15% volatility in underlying interest rates with 50/50 likelihood that the rate increases or decreases. The rates evolve as follows: Rate from 10 to 11 Bate from 1-1 to 1-2 4.80% 6.30% 6,63% 9,37% 7.63% 5.65% Rate from 1-2 to 1-3 12.43% 9.21% 6.82% What is the price of the callable bond in this scenario per 100 of par value? Round your answer to three decimal places. Table of Interest Rates: Time Period Oyly Oy2y 0v3y lyly 2yly Consider the following bond: Exactly 3 years to maturity 9.7% coupon rate, paid annually $100 par value Bond is callable in exactly 1 year for 101.5 and exactly 2 years for 100.5. 6. Suppose that there is zero volatility in interest rates. Restated, suppose that future interest rates equal current market expectations. What is the price of the callable bond? Round your answer to three decimal places. 3.00% Rate 3.00% 7. Now suppose that future interest rates are uncertain. Specifically, there is 15% volatility in underlying interest rates with 50/50 likelihood that the rate increases or decreases. The rates evolve as follows: Rate from 10 to 11 Bate from 1-1 to 1-2 4.80% 6.30% 6,63% 9,37% 7.63% 5.65% Rate from 1-2 to 1-3 12.43% 9.21% 6.82% What is the price of the callable bond in this scenario per 100 of par value? Round your answer to three decimal places.
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Callable Bond Valuation 6 Zero Volatility Scenario Since there is no volatility and future rates are certain we can use the traditional bond valuation model considering the call feature Cash Flows Yea... View the full answer
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