At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury issues as of May 15, 2019: 7.15 May 23 8.90 May 23 12.65 May 23 114.37500 114.43750 111.50000 111.56250 147.65625 147.84375 Call value .43750 5.41 18750 5.37 -.50000 5.45 - - The bond in the middle is callable in February 2020. 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 and round your answer to 2 decimal places, e.g., 32.16.)
At one point, some Treasury bonds were callable. Consider the prices on the following three Treasury issues as of May 15, 2019: 7.15 May 23 8.90 May 23 12.65 May 23 114.37500 114.43750 111.50000 111.56250 147.65625 147.84375 Call value .43750 5.41 18750 5.37 -.50000 5.45 - - The bond in the middle is callable in February 2020. 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 and round your answer to 2 decimal places, e.g., 32.16.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:At one point, some Treasury bonds were callable. Consider the prices on the following
three Treasury issues as of May 15, 2019:
7.15 May 23 114.37500 114.43750
8.90 May 23
111.50000 111.56250
147.65625 147.84375
12.65 May 23
-.43750 5.41
- 18750 5.37
-.50000 5.45
The bond in the middle is callable in February 2020. 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 and round your answer to 2 decimal places,
e.g., 32.16.)
Call value
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