At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury issues as of May 15, 2022: 7.20 May 26 116.40625 116.46875 -.46875 5.42 113.53125 113.59375 -.21875 5.38 8.95 May 26 12.70 May 26 148.68750 148.87500 -.53125 5.46 The bond in the middle is callable in February 2023. What is the implied value of the call feature? Assume a par value of $1,000. (Hint: Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?)
At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury issues as of May 15, 2022: 7.20 May 26 116.40625 116.46875 -.46875 5.42 113.53125 113.59375 -.21875 5.38 8.95 May 26 12.70 May 26 148.68750 148.87500 -.53125 5.46 The bond in the middle is callable in February 2023. What is the implied value of the call feature? Assume a par value of $1,000. (Hint: Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury issues as of May 15, 2022:
7.20 May 26
8.95 May 26
12.70 May 26
116.40625 116.46875 -.46875 5.42
113.53125 113.59375 -.21875 5.38
148.68750 148.87500 -.53125 5.46
The bond in the middle is callable in February 2023. What is the implied value of the call feature? Assume a par value of $1,000. (Hint:
Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?)
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