# Question: Suppose that you are given the following information about two

Suppose that you are given the following information about two callable bonds that can be called immediately:

You are told that both of these bonds have the same maturity and that the coupon rate of one bond is 7% and of the other is 13%. Suppose that the yield curve for both issuers is flat at 8%. Based on this information, which bond is the lower coupon bond and which is the higher coupon bond? Explain why.

You are told that both of these bonds have the same maturity and that the coupon rate of one bond is 7% and of the other is 13%. Suppose that the yield curve for both issuers is flat at 8%. Based on this information, which bond is the lower coupon bond and which is the higher coupon bond? Explain why.

## Relevant Questions

The theoretical value of a noncallable bond is $103; the theoretical value of a callable bond is $101. Determine the theoretical value of the call option. Suppose that a support bond is being analyzed using the Monte Carlo simulation methodology. The theoretical value using 1,500 interest-rate paths is 88. The range for the path present values is a low of 50 and a high of 115. ...Answer the below questions. (a) What assumption is made about the OAS in calculating the effective duration and effective convexity of a RMBS? (b) Is it warranted? The following excerpt is taken from an article titled “Fidelity Eyes $250 Million Move into Premium PACs and I-Os” that appeared in the January 27, 1992, issue of BondWeek, pp. 1 and 21: “Three Fidelity investment ...The following quotes are from Mihir Bhattacharya, “Convertible Securities and Their Valuation,” Chapter 51 in Frank J. Fabozzi (ed.), The Handbook of Fixed Income Securities: Sixth Edition (New York: McGraw-Hill, ...Post your question