What is the value of the embedded call option

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Reference no: EM13881923

Assume that the 3-year 4.5% bond is callable in Year 1 at (101) and in Year 2 at par. The call rule is to call whenever the price exceeds the call price. Calculate the value of the bond with the embedded option.

a. What is the value of the embedded call option?

b. Suppose the market price of the 3-year callable bond is 100.125, what is the option adjusted spread?

Reference no: EM13881923

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