CFA Level 2 | Fixed Income: Valuing a Callable Bond

CFA Level 2
Topic: Fixed Income
Reading: Valuation and Analysis of Bonds with Embedded Options

Callable bonds are called back by the issuer when the bond price exceeds the call price.

Always check properly, the call price amount and the timing of the call.

[trulyimad]

Thanks Fabial that was super simplified. Thanks!

[kabithaya]

Is this process different for convertibles i.e. do you add the coupon before evaluating whether to replace the computed price with convertible price, or do you still add the coupon after the replacement is made?

[andreasmichalias]

Shouldn’t you add 16 (8 plus 8) instead at time 1 at the node whereby you discount it by 7% and then the same at the lower node?

[gatosrafail]

Why dont we add the coupon to the bond price before we compare it with the call price at time 1?

[yoon]

how do we calculate the price of the non option bond?

[Deepesh-lmzn]

One question what if bond is callable at all coupon dates? how do we calculate that

[ricky]

Won't the bond at V(LL) be 101.887 be called to $101?