CH12 - Chapter 12 Callable Bonds 12-1 Callable Bond Call...

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Unformatted text preview: Chapter 12 Callable Bonds 12-1 Callable Bond Call price Par Noncallable but redeemable Freely callable Issue date Maturity Time 12-2 Embedded Option Noncallabl e = Callable + Call Bond Bond Option 125 = 100 + 25 Callable = Noncallabl e - Call Bond Bond Option 100 = 125 - 25 12-3 Yield to Call c c c + Call price Price = P = + ++ 2 nc 1 + R (1 + R) (1 + R) 12-4 Refinancing Benefit Present Value Refinancin g Refinancin g = [ COLD - CNEW ] of an Annuity - Benefit Costs for remaining life 1 Refinancin g = [ 10 - 7 ] - [ (100)(0.01 25) ] Benefit 0.07 = 42 . 86 - 1 . 25 = $ 41 . 61 12-5 Timing of Refunding t Refund + Bt Wa it Points in time t+1 t+2 Refund + Bt + 1 Wa it Refund + Bt + 2 Wa it -P +c +c 12-6 Coupon Savings in General Points in time 0 Old coupon New coupon Savings 1 COld CNew COld CNew 2 COld CNew COld CNew ... COld CNew COld CNew 12-7 Coupon Savings Example Points in time 0 Old coupon New coupon Savings 1 10 7 3 2 10 7 3 ... 10 7 3 12-8 ...
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This note was uploaded on 06/07/2011 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.

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CH12 - Chapter 12 Callable Bonds 12-1 Callable Bond Call...

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