Question #89
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options
PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options.pdf
Page: 28
Status: Unattempted
Question
A callable bond with an 8.2% annual coupon will mature in two years at par value. The current one-year spot rate is 7.9%. For the second year, the yield-volatility model forecasts that the one-year rate will be either 6.8% or 7.6%. The call price is 101. Using a binomial interest rate tree, what is the current price?
Answer Choices:
A. 100.279
B. 100.558
C. 101.000
No explanation available for this question.