1-year Forward rate (7) 0-years from now 1.25 1-year from now 1.75 2-years from now 1.908 3 Using the same information above, what is the price of the bond if it is callable at Par one year and two years from now at zero volatility? Maturity (years) 1 2 Spot rate (70) 1.25 1.5019 1.70491 Cash flow $3 $3 $103

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Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.