Question: At one point, certain U.S. Treasury bonds were callable. Consider the prices in the following three Treasury issues as of May 15, 2017: 05/15/2020 6.80

At one point, certain U.S. Treasury bonds were callable. Consider the prices in the following three Treasury issues as of May 15, 2017: 05/15/2020 6.80 108.90625 108.96875 - 31250 3.620 05/15/2020 7.85 109.43750 109.50000 - 09375 4.430 05/15/2020 9.05 114.50000 114.68750 - 46875 3.820 The bond in the middle is callable in February 2018. What is the implied value of the call feature? Assume a par value of $1,000. (Hint: Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?) (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call value
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
