Question
You have built the following interest rate tree for the next 2 years: Time 0 (%) Time 1 (%) i2h = 3.29 i1 = 2.76
You have built the following interest rate tree for the next 2 years:
| Time 0 (%) | Time 1 (%) |
| i2h = 3.29 | |
| i1 = 2.76 | |
| i2l = 1.92 |
What is the value of the embedded call option in a default-free 4.89% 2-year bond which is callable at par in 1 year, based on this information?
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
12th Edition
0136096689, 978-0136096689
