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Bond Markets, Analysis, and Strategies (7th Edition) by Frank J. Fabozzi_8

Tham khảo tài liệu 'bond markets, analysis, and strategies (7th edition) by frank j. fabozzi_8', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 1 Ml Ml HR Ml Mi Ml IW M IM 364 CHAPTER 14 Analysis of Bonds with Embedded Options e. Demonstrate that if Ơ is assumed to be 10 the lower one-year forward rate one year from now is 6.944 . f. Demonstrate that if Ơ is assumed to be 10 the lower one-year forward rate two years from now is approximately 6.437 . g. Show the binomial interest-rate tree that should be used to value any bond of this issuer. h. Determine the value of an 8.5 coupon option-free bond for this issuer using the binomial interest-rate tree given in part g. i. Determine the value of an 8.5 coupon bond that is callable at par 100 assuming that the issue will be called if the price exceeds par. 14. Explain how an increase in expected interest-rate volatility can decrease the value of â callable bond. 15. How should an interest-rate volatility of 15 be interpreted if the prevailing interest rate is 7 16. a. What is meant by the option-adjusted spread b. What is the spread relative to 17. The option-adjusted spread measures the yield spread over the Treasury on-the-run yield curve. Explain why you agree or disagree with this statement. 18. What is the effect of greater expected interest-rate volatility on the option-adjusted spread of a security 19. The following excerpt is taken from an article titled Call Provisions Drop Off that appeared in the January 27 1992 issue of BondWeek p. 2 Issuance of callable long-term bonds dropped off further last year as interest rates fell removing the incentive for many issuers to pay extra for the provision said Street capital market officials. The shift toward noncallable issues which began in the late 1980s reflects the secular trend of investors unwilling to bear prepayment risk and possibly the cyclical trend that corporations believe that interest rates have hit all time lows. a. What incentive is this article referring to in the first sentence of the excerpt b. Why would issuers not be willing to pay for this incentive if they feel that interest rates will