Price a 5-year callable bond with with a 4.75% coupon that is callable on the second...

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Price a 5-year callable bond with with a 4.75% coupon that is callable on the second coupon date at a price of $102. You will use the interest rate tree below. The tree reports the calibrated forward rates plus the OAS: 3.718% 5.211% 3.048% 6.815% 2 3 3.929% 4 5 2.345% 9.653% 5.486% 3.199% 1.944% Year Zero Rate 1 0.0330 0.0350 0.0360 0.0375 0.0385 12.675% 7.144% 4.109% (a) What is the price of the callable bond? (b) Given the following zero rates and an OAS of 41.8 bps, what is the option cost for the callable bond? 2.444% 1.530% Price a 5-year callable bond with with a 4.75% coupon that is callable on the second coupon date at a price of $102. You will use the interest rate tree below. The tree reports the calibrated forward rates plus the OAS: 3.718% 5.211% 3.048% 6.815% 2 3 3.929% 4 5 2.345% 9.653% 5.486% 3.199% 1.944% Year Zero Rate 1 0.0330 0.0350 0.0360 0.0375 0.0385 12.675% 7.144% 4.109% (a) What is the price of the callable bond? (b) Given the following zero rates and an OAS of 41.8 bps, what is the option cost for the callable bond? 2.444% 1.530%

Answer rating: 100% (QA)

a Price of the callable bond 102 b Option Cost 322 Explanation We will use ... View the full answer