Valuation an option-free bond with the tree, Financial Management

Let us construct a binomial interest rate tree for a 5.5% option free bond taking Table 3 as the binomial interest rate tree. Table 1 shows the various values in the discounting process. The present value of the bond is calculated using backward induction and it is $100.714.

Table 1: Valuing an Option Free Bond

2379_valuing opton free bond.png

Assumed Volatility = 10%

Coupon rate = 5.5%

Posted Date: 9/10/2012 6:55:04 AM | Location : United States







Related Discussions:- Valuation an option-free bond with the tree, Assignment Help, Ask Question on Valuation an option-free bond with the tree, Get Answer, Expert's Help, Valuation an option-free bond with the tree Discussions

Write discussion on Valuation an option-free bond with the tree
Your posts are moderated
Related Questions
Determine about the Shareholders Shareholders, being the owners of the company, elect board of directors and vote on major issues that affect functioning and long term plans of

The actual risk-free rate is 4%. Inflation is likely to be 3% this year and 4% during the next 2 years. We suppose that the maturity risk premium is zero. What is the yield on 2

Q. How are the HIBOR, HSI and HSI futures related? The HIBOR and HSI are contrariwise related. So futures on HIBOR and HSI are as well inversely related. Display

Changes in the bond value is inversely related to the change in the interest rates. If an investor holds a long bond position, he would incur loss if the in

How competitive is the market for banking services? A: With above 7,000 banks and thrifts in the U.S., banking is one of the so many competitive industries in the world. Refer

Interest rate risk is the risk wherein the investor in bonds faces the risk of a fall in his bond price as and when there is a rise in the market interest r

Q. Incorporation of the Risk in Investment Proposal? Incorporation of the Risk in Investment Proposal: - As stated previous risk is involved in every capital budgeting decision

Yang Su is considering the following information on two stocks:                                                                              Rate of Return State of Economy

What kinds of U.S. companies would benefit most from a stronger dollar in the foreign exchange market?  Explain. U.S. companies which import goods from other countries would bene

What is Cost of Capital Cost of Capital is the rate which should be earned in order to satisfy required rate of return of the firm's investors. It may also be defined as the ra