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Determine about the call and put option
A call/ put option provision allow both issuing company and investor to redeem the bonds at a specified amount before maturity date. Long term bonds (10 years or more) generally have a call/ put option is attached to bond which is (usually) exercisable after every 5 year intervals. In this case issuing company has a call option that it can call back the bonds and repay to investors the principal and interest due till that date. If issuer exercises his call option the investor has no recourse but to submit his bonds and get money. Likewise the investor has a put option, in which case he has an option to return the bonds and get principal and interest till that date. As in earlier case if investor exercises his option, company has no recourse though to pay the investor.
What happens to the riskiness of a portfolio if assets with very low correlations (even negative correlations) are combined? How successfully diversification decreases risk reli
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Along the dimension of security, bonds can be classified into unsecured (straight) bonds and secured (mortgage) bonds. Unsecured bonds have no charge on any speci
Now we can calculate the yield for each possible call or put date. In addition, we can also calculate the yield to maturity. The lowest yield of all these possibl
Illustration Let us assume that Vishal Mehta & Co., (from Illustration 1) is using the following discounting rates in place of one rate:
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It is not easy to determine the theoretical value of non-treasury securities. However, we can use the treasury spot rate for the valuation of non-treasury security.
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