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Suppose an investor owns a 30-year Apple bond that is non callable. The coupon is 4% and the price is 125. There is a similar Apple bond (30 year maturity and 4% coupon) that is callable in 5 years. That bond is priced at 105. What does that say about the value of the call. There is also a similar Apple bond that is puttable in 5 years. Describe a rough range for this bond price, with your rationale.

Suppose an investor owns a 30-year Apple bond that is non callable. The coupon is 4% and the price is 125. There is a similar Apple bond (30 year maturity and 4% coupon) that is callable in 5 years. That bond is priced at 105. What does that say about the value of the call. There is also a similar Apple bond that is puttable in 5 years. Describe a rough range for this bond price, with your rationale.

Essentials Of Investments
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
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Suppose an investor owns a 30-year Apple bond that is non callable. The coupon is 4% and the price is 125. There is a similar Apple bond (30 year maturity and 4% coupon) that is callable in 5 years. That bond is priced at 105. What does that say about the value of the call. There is also a similar Apple bond that is puttable in 5 years. Describe a rough range for this bond price, with your rationale.
Transcribed Image Text:Suppose an investor owns a 30-year Apple bond that is non callable. The coupon is 4% and the price is 125. There is a similar Apple bond (30 year maturity and 4% coupon) that is callable in 5 years. That bond is priced at 105. What does that say about the value of the call. There is also a similar Apple bond that is puttable in 5 years. Describe a rough range for this bond price, with your rationale.
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