Question
Consider a 3-year putable bond with 7% coupon rate which becomes putable at $101 in one year and stays putable at $101 in the following
Consider a 3-year putable bond with 7% coupon rate which becomes putable at $101 in one year and stays putable at $101 in the following years. As in the following exhibit the prices for an option-free bond in the second year are calculated as $99.115, $100.295, and $101.282 in upper, middle and lower nodes. Assume PH=PL=0.50.
What is the modified price at Price at NHH when we consider that this bond is putable?
What is the modified price at Price at NHL when we consider that this bond is putable?
What is the modified price at Price at NLL when we consider that this bond is putable?
Given the modified prices above, calculate the putable bond price at NH.
Given the modified prices above, calculate the putable bond price at NL.
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