Question #16
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
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Question
Which of the following is the appropriate "nodal decision" within the backward induction methodology of the interest tree framework for a putable bond?
Answer Choices:
A. Min(put value, discounted value)
B. Max(par value, discounted value)
C. Max(put price, discounted value). Explanation When valuing a putable bond using the backward induction methodology, the relevant cash flow to use at each nodal period is the coupon to be received during that nodal period plus the computed value or exercise price, whichever is greater. (Module 27.2, LOS 27.f)
No explanation available for this question.