Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
The volatility assumption has a great influence on the arbitrage free value of the bond. The higher the expected volatility, the greater the value of an option. When we assume a higher interest rate volatility for a callable bond, it means that the value of the call option increases. But the value of the option-free bond is not affected; therefore the value of the callable bond will be lower.
Let us consider that the binomial interest rate tree provides a value of $105.385 for both 10% and 20% interest rate volatility. The value of the callable bond with a volatility interest rate assumed at 20% and callable at par beginning in year-1 is $103.076 and the value of the callable bond with an assumed interest rate volatility of 10% is $103.765. We notice that the higher the assumed volatility, the lower the value of the callable bond. This is because the value of an option increases with the higher assumed volatility. Therefore, the value of the embedded option is higher at 20% assumed volatility than the value of the embedded option at 10%. When a higher value for the embedded call option is subtracted from the option-free value, the value of the callable bond would be lower compared to 10% volatility. The difference between the two values implies that the bond is cheaper by $0.689.
What is the difference between business risk and financial risk? Business risk refers to the improbability a company has with regard to its operating income also known as earni
I nvitation of bids and bid publicity In previous sub section we learnt how the bid capacity for works and goods are calculated. We discussed how to prepare the bid documents,
How exchange of principal and interest in one currency? Expalin
Role of Trustee in Pension Fund: Trustees are people in control of long-term asset allocation of a pension scheme. Whatever benchmark they set will, as we shall see, influence
Tests for Consistency The consistency of the index numbers have been tested over the years. The most important of these tests are: The time reversal test The
In modern strategic management accounting it is important to use appropriate performance measurements and control concepts, underpinned by theories and models applied in a variety
In January 2010 your firm bought from an Italian firm goods payable in Euros worth EU2,000,000. Suppose that at that time the exchange rate of the Euros was 1EU=$1.25. Because th
A computer products store stocks color graphics monitors, and the daily demand is normally distributed with a mean of 1.6 monitors and a standard deviation of 0.4 monitor. The lead
decision criteria of profitability index.
This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer of petroleum and
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd