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Consider the prices in the following three Treasury issues as of May 15, 2014: 05/15/2020 7.00 108.62500 108.68750 .31250 5.910 05/15/2020 8.25 105.75000 105.81250 .09375
Consider the prices in the following three Treasury issues as of May 15, 2014:
05/15/2020 | 7.00 | 108.62500 | 108.68750 | .31250 | 5.910 | |||||||||
05/15/2020 | 8.25 | 105.75000 | 105.81250 | .09375 | 7.050 | |||||||||
05/15/2020 | 12.50 | 144.90625 | 145.09375 | .46875 | 3.980 | |||||||||
The bond in the middle is callable in February 2015. 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.)
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