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Value of the call feature to the issuer

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Assume three equivalent bonds, call them A, B and C. Each of these bonds has term-to-maturity of 10 years, coupon rate of 8% per annum, the face value of $1,000 and the coupon payments semi-annual. The difference among A, B and C are: A is non-callable and non-convertible, B is callable and non-convertible and C is both callable and convertible. The annual yields-to-maturity of A, B and C are 10%, 12% and 9% respectively. Find:

i) The value of the call feature to the issuer, and

ii) The value of the conversion feature to the investor

Reference no: EM132379900

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