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

Determine the firms eps, The operating income of H Ltd amounts to Rs. 18600...

The operating income of H Ltd amounts to Rs. 186000. It pays 35% tax on its income. Its capital structure consists of the following: 14% Debentures

E-Commerce, Ask question #Minimu• 1.What is an Auction? E Bay is a market l...

Ask question #Minimu• 1.What is an Auction? E Bay is a market leader in online auction sites. Discuss SWOT for E bay using your web sources?. 2.Why so many entrepreneurs drawn to

Price earnings ratio valuation, Price Earnings Ratio Valuation P/E rat...

Price Earnings Ratio Valuation P/E ratio is traditionally employed for valuation of shares however it is an important ratio in the valuation of business. The P/E ratio is the

Calculate the total increment prize, Prudence buys a bond in EUR when it is...

Prudence buys a bond in EUR when it issued by the French government and inflation linked.  It offers a 2% yearly coupon.  She holds it for five years.             Par value: EUR

Sketch a graph of the investment against the probability, Question: a) ...

Question: a) Lucy who plans to retire in 18 years has decided to save money in the bank at the beginning of each month until her retirement, with each subsequent saving incre

Prepare comparative income statement, From the following cost, production a...

From the following cost, production and sales data of Decors Motor Ltd., prepare comparative income statement for three years under (i) absorption costing method, and (ii) marginal

Drawback of stock repurchases, Drawback of Stock Repurchases 1. High ...

Drawback of Stock Repurchases 1. High price A company may find it not easy to repurchase shares at their recent value and price paid may be higher to the detriment of rem

Calculate yield to maturity - annual & semi annual payment, 1) Calculate th...

1) Calculate the yield to maturity of a 7-year $1,000 par value bond with an annual coupon rate of 7.5% and a current price of $1,125. Provide the spreadsheet solutions for both an

Evaluate the fair value of the stock, Lavista Ltd is a leading music entert...

Lavista Ltd is a leading music entertainment company in the country and the stocks of the company are actively traded in the stock exchange. For the year just ended few days back

Circle the new equilibrium if there is an increase in price, a.  In the acc...

a.  In the accompanying diagram (which represents the market for chocolate candy bars), the initial equilibrium is at the intersection of S1 and D1. Circle the new equilibrium if t

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