Matt purchased a 20 year par value bond with annual coupon rate of 8% payable semiannually at a price of $1722.25$. The bond can be called at par value $X$ on any coupon date starting at the end of year 15 after the coupon is paid. The lowest yield rate that Matt can possibly receive is a nominal annual interest rate of 6% convertible semiannually. Calculate x.

My problem with this problem is that I don't understand the meaning of it. So if I understand correctly, the bond is good for 20 years. you pay each year 1722.25 with is 8% of coupon rate. I don't understand what is called by value?

  • $\begingroup$ Pricing options is a fairly complicated business....on it's face, there isn't nearly enough information here. $\endgroup$ – lulu May 20 at 22:48

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