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At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury issues as of May 15, 2016: 7.45 May 20
At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury issues as of May 15, 2016:
7.45 | May | 20 | n | 126.56250 | 126.62500 | ? | .62500 | 5.47 | ||||||
9.20 | May | 20 | 123.68750 | 123.75000 | ? | .12500 | 5.43 | |||||||
12.95 | May | 20 | 153.84375 | 154.03125 | ? | .68750 | 5.51 | |||||||
The bond in the middle is callable in February 2017. 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?) (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Call value $
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