Determination of the coupon rate, Finance Basics

Assignment Help:

The partners are still unhappy about one of the features of your analysis, namely your assumption that the coupon rate of the bond is equal to 6% per annum. Their thinking is that it is the coupon rate which should be adjusted in such a way that the initial value of the bond is equal to the desired amount.

(a) Assume that the face value of the bond issue is equal to one million dollars and that the coupon rate is given by C = 6%+S where S is a spread which is chosen in such a way that the initial value of the issue is equal to par. Should S be positive or negative?

(b) Determine the value of the spread S under the assumptions that the strike price and the volatility of the relevant forward swap rate are given by K = 1and

σswap(t) = 0:41(T - t)e-0:65(T-t);

where T is the first fixing date of the underlying swap.

 


Related Discussions:- Determination of the coupon rate

Explain the financial statement effects, Attached is the file for your bond...

Attached is the file for your bond problem. Your group must use the following for the bond problem. In addition, using the general ledger software as described in the project i

Advantage of bill - source of finance, Advantage of Bill - Source of Financ...

Advantage of Bill - Source of Finance Advantages of necessitating a Bill as a Source of Finance They are a faster means of raising finance whether drawer is credible.

Find the no-arbitrage cost of the european call option, Question: Suppo...

Question: Suppose that a security is presently selling for a price of $65, the nominal interest rate is 8%, and the security volatility is 0.15. a) Determine Delta of a Euro

Explain mechanics of security trading in stock exchange, Explain Mechanics ...

Explain Mechanics of security trading in Stock Exchange Introduction: An investor should have some knowledge of how the securities markets operate. Marketing of old or new se

Valuation of share, Valuation of Share A number of parties are interes...

Valuation of Share A number of parties are interested however in the value of shares and securities and that will include: Company shareholders, vendors and directors of

Venture Capital, In Term Sheets, what are the outcomes of Economics and Con...

In Term Sheets, what are the outcomes of Economics and Control?

#title.financial leverage., Evaluate the importance of leverage of financia...

Evaluate the importance of leverage of financial management of a small scale company

Investment analysis, Ask questConsider an 8% coupon bond selling for $953.1...

Ask questConsider an 8% coupon bond selling for $953.10 with 3 years until maturity making annual coupon payments. The interest rates in the next 3 years will be, with certainty, r

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd