Revision as of 17:58, 19 November 2023 by Admin (Created page with "'''Solution: C''' Given the coupon rate is greater than the yield rate, the bond sells at a premium. Thus, the minimum yield rate for this callable bond is calculated based on a call at the earliest possible date because that is most disadvantageous to the bond holder (earliest time at which a loss occurs). Thus, X, the par value, which equals the redemption value because the bond is a par value bond, must satisfy <math display = "block"> \mathrm{Price} = 172225=0.04\...")
Exercise
ABy Admin
Nov 19'23
Answer
Solution: C
Given the coupon rate is greater than the yield rate, the bond sells at a premium. Thus, the minimum yield rate for this callable bond is calculated based on a call at the earliest possible date because that is most disadvantageous to the bond holder (earliest time at which a loss occurs). Thus, X, the par value, which equals the redemption value because the bond is a par value bond, must satisfy
[[math]]
\mathrm{Price} = 172225=0.04\,X a_{\overline{30}|0.03}^{}+X v^{30}_{0.03}=1.196\,X\Rightarrow X=1440.
[[/math]]
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