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Calculate the price of the callable bond

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Reference no: EM133004649

Rambustan ICo wants to release a perpetual callable bond that pays 10.24% annual coupons. interest rate 8.8%. Two years after, there is 17% probability that the interest rate will be 5%, 29% probability that the interest rate will be 9.4% and 54% probability that the interest rate will be 12.8%.

Bbond is callable at par value of 1,000 + 2 additional coupon payments and it will be called if the bond price is greater than the call price.

Calculate the price of the callable bond.

What is the value of the call option?

What is the minimum coupon rate that the bond will be certainly called in two years?

Reference no: EM133004649

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