Please help! Thank you a.) Calculate the value of this bond assuming it is...
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Please help! Thank you
a.) Calculate the value of this bond assuming it is callable in 1 year at par from Exhibit 18-14.
Be sure you can fill in the forward interest rates for the interest rate tree, taking as given r0, r1,L , and r2,LL. Where r0 = 3.500%, r1,L = 4.074%, and r2,LL = 4.530%
The problem above assumed that interest rate volatility was 10%. Redo the problem above assuming that interest rate volatility is 20%.
Please provide the answer with a detailed analysis. Thank you!
Exhibit 18-14 Valuing a Callable Corporate Bond with Three Years to Maturity, a Coupon Rate of 5.25%, and Callable in One Year at 100 V = 98.588 C = 5.25 2,HH = 6.757% V = 99.461 C = 5.25 = 4.976% V = 101.432 C=0 6 = 3.500% V = 99.732 C = 5.25 NHL 12,HL = 5.532% V = 100 f100.001) C = 5.25 = 4.074% N V = 100 f100.6897 C = 5.25 2,= 4.530% NLL Exhibit 18-14 Valuing a Callable Corporate Bond with Three Years to Maturity, a Coupon Rate of 5.25%, and Callable in One Year at 100 V = 98.588 C = 5.25 2,HH = 6.757% V = 99.461 C = 5.25 = 4.976% V = 101.432 C=0 6 = 3.500% V = 99.732 C = 5.25 NHL 12,HL = 5.532% V = 100 f100.001) C = 5.25 = 4.074% N V = 100 f100.6897 C = 5.25 2,= 4.530% NLL
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