KIC000012 - r . l:;>' ', . "_M' ,_",_. , . .1...

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l:;>' "_M' ,_",,_. ... •', . . . . , . . . . .1 Valuation Model (continued) .:. Valulng a Callable Corporate Bond o The valuation process for a callable corporate bond proceeds in the same fashion as in the case of an option- free bond bUIwith one exception: When the call option may be exercised by the issuer, the bond value et II node must be changed to reflect the lesser of its veloe iftl is not called {i.e., the value. obcllined by Ilpplying the recursive valuation fonnula described previously) and the C1111 price. o For example, consider a 5.25% corporate bond witll three years remaining to maturity that is callable in one year at SIOO. Exhibit 17·14 shows the values at each node of the binomial interest-rare tree. , ... ,.... , , ..... _ .. •._ ·.. Exhibit 18-14 Vil1lllng a Callitble CQrpolOlte Bond with Three Ye.arsto Maturity and _ Coupon Rate or 5.25%, and Callable in One Year at 100 "-_"'.",_ . . $- . "' ' " ...... w.:"-., . .. 12
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KIC000012 - r . l:;>' ', . "_M' ,_",_. , . .1...

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