Determine the price of the bond with annual coupons

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Consider a callable bond with annual coupons, a face value of $1000, and a 20yr term. The coupon rate is an annual rate of 7%, the yield rate is annual rate of 7.25%. The bond may be called at any coupon date (after coupon payment has been made) at times t=14 through t=20. If the bond is called at t=14, 15, or 16, the redemption value is $970. If the bond is called at t= 17, or 18 the redemption values is $995. If the bond is called at t= 19, or 20, the redemption value is $1000. The price of the bond is set to be the minimum price from the various redemption scenarios. Find the price of the bond.

Reference no: EM13335733

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