Question
A plain-vanilla note from a particular issuer carries a coupon rate of 7%. The firm issues a CLN with a coupon of 4%. The CLN
A plain-vanilla note from a particular issuer carries a coupon rate of 7%. The firm issues a CLN with a coupon of 4%. The CLN contains an implicit call option on the S&P GSCI (currently at $1,500) with a strike price set 10% out-of-the-money, at 1,650. How much of coupon income is the firm sacrificing to carry a CLN with the embedded call option? Please assume that a principal payment of the note is $1,000,000.
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distribution as principal payment principal1 SP GSCI value at maturitystrike ...
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Fundamentals of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
6th Canadian edition
1259024962, 978-1259024962
