Value for an option-free bond

Reference no: EM131247152

Evaluate the following statements:

(a) If the future spot rates are expected to be lower than the current forward rates for the same maturities, bonds are most likely to be overvalued, according to the expectations hypothesis.

(b) Z-spread is the spread over the Treasury spot curve that a bond would trade at if it had no embedded option.

(c) If the binomial tree is correctly calibrated, it should give the same value for an option-free bond as using the spot curve (par curve) used to calibrate the tree.

(d) If a firm's credit rating remains stable over time, the correlation its default probability over the business cycle would be reduced.

(e) Zero coupon bonds (ZCB) have duration equals to its maturity. Hence, ZCB's price sensitivity to interest rate change is the same regardless of the interest rates level.

Reference no: EM131247152

Questions Cloud

Why is development participation not used more often : Discuss the potential role of NGOs in relation to the government and private sectors. What are the most important potential areas of comparative advantage of NGOs? What are the most important "voluntary failures" that can inhibit NGOs from realizi..

Combined principal and interest on an amount : Ross has just been notified that the combined principal and interest on an amount that he borrowed 21 months ago at 6.4% compounded quarterly is now $3576.07. How much of this amount is principal and how much is interest?

Amount today is economically equivalent : What amount today is economically equivalent to $8,900 paid 15 months from now if money is worth 6.6% compounded monthly?

How has your experience been with the nurse leader : Describe your experience working with a nurse leader, providing a description of your interactions with him/her . Of the leadership theories discussed this week (trait, behavioral, contingency, etc) which one did this nurse leader subscribe to? Wh..

Value for an option-free bond : Evaluate the following statements: If the binomial tree is correctly calibrated, it should give the same value for an option-free bond as using the spot curve (par curve) used to calibrate the tree

Explain the difference : Explain the difference (if there is one) between x-intercepts, roots, zeros, and factors. You use definitions, examples, graphs, etc. in your explanation.

Estimate the oxygen cost of bench stepping : Contrast the approaches used for developing exercise prescriptions for the general public, for the fit population, and for people whose complete GXT results are available. Describe the differences between a supervised and an unsupervised ..

Internal and external marketing environment of a firm : Should Gordon continue to back Martys unrestrained authenticity approach - How important is it for there to be a match between the internal and external marketing environment of a firm?

Why will the value of an american put always be greater : Why will the value of an American put always be greater than or equal to the value of a corresponding European put?

User Account

All Pages