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Basic Question 0 of 13
What is the value of a 2-year, 6% coupon, callable bond (in one year at 100) given the following interest rate tree?
User Contributed Comments 14
| User | Comment |
|---|---|
| katybo | finally Im understanding binomial trees! |
| xyzanand | Life is a binomial tree... |
| octavianus | How do you calculate the call values in general? In this case, how do you determine $99.755 (Up) and $100 (down) for year 1 call values? Please help!!!! |
| mchu | Value at the Node = Min {Value from backward induction, Call price} Call price is par. |
| tabulator | octavianus, take some time reading notes and not jumping straigh to problems |
| rhardin | Yes, the notes were very clear and helpful. Read them. |
| moghizz | read them octavianus! read them! |
| charomano | 99.755 = 0.5*(100+6)/(1+0.06205) + 0.5*(100+6) / (1+0.06205) |
| ukrainia | Octavianus check the notes brah! |
| ybavly | Jeez, Octavianus, it's right there staring at you. Read the notes!! |
| bbadger | If the interest rate is less than the coupon rate, write in the call value. You need a greater than coupon interest rate to discount to less than par value. |
| bbadger | And don't read the notes Octa, in fact I hope at least 65% of you don't study at all. Thanks. |
| thebkr777 | ^LOL @bbadger Level 2 thinking right here |
| davidt876 | ...turns out octa really doesn't have a clue wa gwaan |
Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
describe the measurement of inventory at the lower of cost and net realisable value and its implications for financial statements and ratios
CFA® 2025 Level I Curriculum, Volume 2, Module 6.