Assume that a callable bond’s call period starts two years from now with a call price of $102.50. Also assume that the bond pays an annual coupon of 6% and the term structure is flat at 5.5%. Which of the following is the price of the bond assuming that it is called on the first call date?
Bond price= 6/1.055+(102.5+6)/1.055^2=103.17
Can somone explain this?
I would also like to have calculator answer. If it is possible to do so.
Regards,
David.