This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: 8.3440% 5.9196% 8.0441% 3.500% 5.5931% 3.9680% 5.3921% 3.7492% 3.6144% Practice 2 Show that the value of an option free bond with four years to maturity and a coupon rate of 6.5% is $104.643 if volatility is assumed to be 20% Practice 3 Suppose that the volatility assumption is 20% rather than 10% and therefore the binomial interest rate tree is the one shown in Practice 1. a) Compute the arbitrage-free value for the 4-year 6.5% coupon bond callable at par beginning Year 1 based upon 20% volatility b) Compare the arbitrage-free value for this bond based upon 20% volatility and 10% volatility as computed in exhibit 8 Practice 4 Show that if 15% volatility is assumed the OAS is -6 basis points Practice 5 Using the binomial interest rate tree based on 20%, show that the value of this putable bond is 106.010. Assume the bond is non-callable...
View Full Document
This note was uploaded on 04/04/2012 for the course ECON 311 taught by Professor Ford during the Spring '11 term at University of San Francisco.
- Spring '11