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The term structure of interest rates is flat at 4.3 %, but rates could change immediately to 6.3 % or 2.3 % with probability of
The term structure of interest rates is flat at 4.3 %, but rates could change immediately to 6.3 % or 2.3 % with probability of 0.48 and 0.52, respectively, and stay at that level forever. You purchase a putable bond with 30 years to maturity and 4.3 % coupon paid annually. The putable bond can be put at $ 98 immediately. NOTICE: Round ALL calculations to 4 decimal places. Only round what you input in the blank to 2 decimal places. If you get 1.2345 then write 1.23. The price of the putable bond is. The price of the embedded put option is $ The yeild spread of the putable bond over an otherwise straight bond is %6
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