Bond paying annual coupons with redemption value

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Reference no: EM131170808

Suppose that the Johnson family has the option of purchasing two bonds.

• Bond A is a $4000 10% 10 year bond paying annual coupons with redemption value $2000, which can be purchased at a premium for $3000.

• Bond B is a $4000 10% 10 year bond paying annual coupons with redemption value $3000, which can be purchased at a discount for $2000.

Suppose further that each bond has a lockout period of 5 years, after which a put option can be placed at the end of years {6, 7, 8, 9} for put premium of $1500

Reference no: EM131170808

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