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

Tax differential theory, Tax Differential Theory Advanced via Lichtenb...

Tax Differential Theory Advanced via Lichtenberger and Ramaswamy in 1979.They argued that tax rate on dividends is higher quite than tax rate on capital gains. Thus, a firm th

Solutions - shareholders and management conflict, Solutions - Shareholders ...

Solutions - Shareholders and Management Conflict Conflicts between management and shareholders may be resolved as follows like: 1. Pegging or attaching managerial compens

State the realised and expected return, State the Realised and Expected Ret...

State the Realised and Expected Return Return is not as simple a notion as it appears to be as it's not guaranteed, it is mostly expected, and it may or may not be realized.

Public finance, models of solving externalities in 1) external sector 2)pr...

models of solving externalities in 1) external sector 2)private sector

Describe the accruals-based financial statements, On 1 January 2008, a youn...

On 1 January 2008, a young artist called Michelangelo signed a contract with a charity named Art Angels, which supports young artists to do large projects. The agreement requires M

Getting money, how i can get enough money with out doing any works ???????...

how i can get enough money with out doing any works ????????????

Plastic money or credit card finance, Plastic Money or Credit Card Finance ...

Plastic Money or Credit Card Finance This is finance of a kind whereby a company will make arrangements for the use of the services of credit card organizations via the purcha

Acceptance rule of payback period or pbp, Acceptance Rule of Payback Period...

Acceptance Rule of Payback Period or PBP By using PBP method a company such will accept all those ventures whose payback period is less than to set via the management and will

Profitability in relation to investment, Profitability in relation to inves...

Profitability in relation to investment - Profitability Ratio a) Return on Investment (ROI) or return on total asset (ROTA) = (Net profit/ Total asset) x 100 The ratio i

Option Pricing, Show that for any constant 0=a=1, C(aK1 + (1-a)K2) = aC(K1)...

Show that for any constant 0=a=1, C(aK1 + (1-a)K2) = aC(K1) + (1-a)C(K2) where C(k) is the European option price with strike K. All the options in this question are assumed to be

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