The following are the 1 year forward rates over the next three years

Period	Rate
0y1y	2.62%
1y1y	3.16%
2y1y	4.72%

Find the price of a default-free bond with 3 years to maturity, annual coupon payments, and 4.55% coupon rate, if the bond has an embedded Bermudan style put option and is puttable at par 1 and 2 years from now. Assume no volatility of interest rates.

PLEASE SHOW WORK IN EXCEL

Answer rating: 100% (QA)

SOLUTION To find the price of the bond with an embedded Bermudan style put option we need to value both the bond and the put option separately and the... View the full answer