Valuation and duration of callable bonds , Financial Management

A callable bond is similar to an Option-free bond with a call option from the bondholder. It can be thought of as the sale of a call option by the investor to the issuer as it allows the issuer to repurchase the bond from the time it becomes callable until the maturity date. The purchaser of a callable bond effectively enters into two transactions.

  1. Purchase of a non-callable bond for which they pay some price.

  2. Sale of a call option to the issuer for which they receive the option price from him.

The net price paid by the callable bondholder is given by,

         Price of the callable bond = Price of the non-callable bond

                                                             - Price of the call option.

         Value of callable option = Value of an option-free bond

                                                           - Value of a call option on the bond.                  

Posted Date: 9/8/2012 6:33:04 AM | Location : United States







Related Discussions:- Valuation and duration of callable bonds , Assignment Help, Ask Question on Valuation and duration of callable bonds , Get Answer, Expert's Help, Valuation and duration of callable bonds Discussions

Write discussion on Valuation and duration of callable bonds
Your posts are moderated
Related Questions
Z works for HS Company and has been asked to undertake an assessment of any health and safety issues that might be potential hazards in the department which she manages. Z's respon

Lenders in the US insist upon some kind of mortgage insurance. There are broadly two types of mortgage insurance - one is

I just purchased a stock that would pay the dividends of the first four years as D1 = $0.65, D2 = $0.74, D3 = $0.79, D4 = $0.84. I also told that the dividends would grow continual

The Central Bank is an authority responsible for monetary policy of its country. It regulates money supply and credit, issues currency, and manages exchange rate.

Q. Describe the basic Career stages? The proper way to analyze and discuss career is to look at them as made up of stages. We can identify five career stages that people most p

Electronic Communications Networks: In traditional stock exchanges, the buying and selling of stocks take place at a physical location only and the members have to conduct tradi

The financial ratios of a firm are given:     Current ratio    =  1.33   Acid-test ratio   =  0.80   Current liabilities  = 40,000   Inventory turnover ratio = 6    What is the

Q. Explain about pink book? This shows the various sub heads under which the lum sum amount sanctioned by allotment is to be spent and this indicates the works for which the al

there are 3 compaies i have to find out the price of equity share by using walters and gordons model.

Seasonal Variation Under this variation, we observe that the variable under consideration shows a similar pattern during certain months of the successive years. An example of s