Valuation an option-free bond with the tree, Financial Management

Assignment Help:

Let us construct a binomial interest rate tree for a 5.5% option free bond taking Table 3 as the binomial interest rate tree. Table 1 shows the various values in the discounting process. The present value of the bond is calculated using backward induction and it is $100.714.

Table 1: Valuing an Option Free Bond

2379_valuing opton free bond.png

Assumed Volatility = 10%

Coupon rate = 5.5%


Related Discussions:- Valuation an option-free bond with the tree

Capital budgeting., definition and importance of capiyal budgeting

definition and importance of capiyal budgeting

Financial assets, Financial assets: Financial assets/instruments repres...

Financial assets: Financial assets/instruments represent the financial obligations that arise when the borrower raises funds in the financial market. In exchange for the funds

Portfolio management, Portfolio Management: Project Portfolio Manageme...

Portfolio Management: Project Portfolio Management (PPM) is the centralized management of processes, technologies and methods used by project management offices (PMOs) and pro

Compute the market price of walters model, The earnings per share of a comp...

The earnings per share of a company is Rs 8 and the rate of capitalization applicable is 10%. The company has before it, an option of adopting i) 50,ii) 75 iii) 100 per cent div

Stream of expected returns, Stream of Expected Returns Investment retur...

Stream of Expected Returns Investment returns can take many forms. An investor must consider all these forms to evaluate an investment option accurately. A brief description of

Example on walters dividend model, Q. Example on Walters dividend model? ...

Q. Example on Walters dividend model? Example: - The following information is obtainable in respect of a firm: Capitalisation Rate (Ke)                     = 10% Earning

Return payment method, when asked to calculate return method given cash flo...

when asked to calculate return method given cash flow before depreciation how do you do it

Value of conversion benefits, Value of Conversion Benefits: Having seen...

Value of Conversion Benefits: Having seen the measure used to analyze the convertible bonds, let us now examine the merits and demerits of convertible bonds and why or why not

Explain investment opportunity schedule, What is the investment opportunity...

What is the investment opportunity schedule (IOS)?  How does it help financial managers make business decisions? The investment opportunity schedule depicts graphically propose

Rejecting proposed projects when using internal rate of retu, What is the d...

What is the decision rule for accepting or rejecting proposed projects when using internal rate of return? Whenever the internal rate of return is equal or greater than to the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd