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You just started to work as a trader at the IRES bank. A customer is requesting a quote for the asking price of a prepayable (callable) bond. The par value is 100. The bank is currently giving 100.226
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You just started to work as a trader at the IRES bank. A customer is requesting a quote for the asking price of a prepayable (callable) bond. The par value is 100. The bank is currently giving 100.226 as the asking price of an otherwise equivalent non-prepayable (non-callable) bond. The bank’s prepayment model gives you 3.215 as the prepayment option premium for the bond. What is the asking price you give to the customer?

User David Velasquez
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1 Answer

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Answer: $97.011

Step-by-step explanation:

The asking price you would give to the customer would be subtracting the asking price from the prepayment option premium for the bond.

The asking price is 100.26 and the prepayment option premium for the bond is 3.125. Therefore,

100.26 - 3.125 = $97.011

User Ventaur
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