Why should I choose AnalystNotes?
AnalystNotes specializes in helping candidates pass. Period.
Basic Question 1 of 15
What is the value of a 2-year, 6% coupon, callable bond (in one year at 100) given the following interest rate tree?
User Contributed Comments 14
| User | Comment |
|---|---|
| katybo | finally Im understanding binomial trees! |
| xyzanand | Life is a binomial tree... |
| octavianus | How do you calculate the call values in general? In this case, how do you determine $99.755 (Up) and $100 (down) for year 1 call values? Please help!!!! |
| mchu | Value at the Node = Min {Value from backward induction, Call price} Call price is par. |
| tabulator | octavianus, take some time reading notes and not jumping straigh to problems |
| rhardin | Yes, the notes were very clear and helpful. Read them. |
| moghizz | read them octavianus! read them! |
| charomano | 99.755 = 0.5*(100+6)/(1+0.06205) + 0.5*(100+6) / (1+0.06205) |
| ukrainia | Octavianus check the notes brah! |
| ybavly | Jeez, Octavianus, it's right there staring at you. Read the notes!! |
| bbadger | If the interest rate is less than the coupon rate, write in the call value. You need a greater than coupon interest rate to discount to less than par value. |
| bbadger | And don't read the notes Octa, in fact I hope at least 65% of you don't study at all. Thanks. |
| thebkr777 | ^LOL @bbadger Level 2 thinking right here |
| davidt876 | ...turns out octa really doesn't have a clue wa gwaan |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain how interest rate volatility affects the value of a callable or putable bond;
explain how changes in the level and shape of the yield curve affect the value of a callable or putable bond;
calculate the value of a callable or putable bond from an interest rate tree;
CFA® 2025 Level II Curriculum, Volume 4, Module 28.