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Unformatted text preview: 11.00% Probability of rate in one year 60% Rate in one year 13% Probability of rate in one year 40% Rate in one year 9% Output area: Coupon payment $108.63 Coupon rate 10.86% Chapter 20 Question 7 Input area: Face value of debt $250,000,000 Coupon rate 8% Refunding costs 12% Tax rate 35% Output area: Aftertax cost of refunding $19,500,000 Refund at rates below 7.42% Chapter 20 Question 9 Input area: Coupon rate of Bond 1 6.50% Coupon rate of Bond 2 8.25% Coupon rate of Bond 3 12.00% Price of Bond 1 $106.37500 Price of Bond 2 $103.50000 Price of Bond 3 $134.96875 Par value $1,000 Output area: Bond 2 coupon = Bond 1 coupon X r + Bond 3 coupon X (1  r) r = (Bond 2 coupon  Bond 3 coupon) / (Bond 3 coupon  Bond 1 coupon) = Implied value of callable bond = $115.47 Implied value of call option = $119.73 0.68182...
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This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Fall '09 term at UMBC.
 Fall '09
 Halstead

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