Question
Hi, please give me some advise below if I am on the right track of understanding the questions below. Bond A B C Face Value
Hi, please give me some advise below if I am on the right track of understanding the questions below.
Bond A B C
Face Value 1000 1000 1000
Maturity(yr) 20 20 20
Coupon rate Annually 5.5 5.5 5.5
Yield to Maturity 5 5.5 3.5
special features none callable Callable and Convertible
price ? Par ?
Note : Bond B is considered identical to Bond A except for the callability provision.
Is my calculation of the price of Bond A correct?
PVbond(PMT,FV,,YTM,n):= PVbond(55,1000,5%,20) = -1062.31
The price of bond A is $1062.31
For the implied value of the callability provision?
would you please explain how to calculate implied value of the callability provision in question 2, I could not find any reference and sample in my textbook. Is it a number value?
I believe the callability provision benefit the issuer over the purchaser in general?
I am not sure what is this question asking "Is it consistent with the price you calculated for Bond A relative to the price of Bond B?" Can you explain if what I thought it would be is on the right track.
In my opinion, Bond B states price is Par, is that means the price is $1,000, if so the answer is yes because bond with callable feature usually offer better return.
Thank you.
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