The Following Information Relates to Questions 1-10
Samuel & Sons

question 30

Multiple Choice

The following information relates to Questions 1-10
Samuel & Sons is a fixed-income specialty firm that offers advisory services to investment management companies. on 1 october 20X0, Steele ferguson, a senior analyst at Samuel, is reviewing three fixed-rate bonds issued by a local firm, Pro Star, inc. The three bonds, whose characteristics are given in Exhibit 1, carry the highest credit rating.
EXHiBiT 1 fixed-Rate Bonds issued by Pro Star, inc.
$\begin{array}{lcll}\text { Bond } & \text { Maturity } & \text { Coupon } &{\text { Type of Bond }} \\\hline \text { Bond 1 } & 1 \text { October 20X3 } & 4.40 \% \text { annual } & \text { Option-free } \\\\\text { Bond 2 } & 1 \text { October 20X3 } & 4.40 \% \text { annual } & \text { Callable at par on 1 October 20X1 } \\&&&\text { and on 1 October 20X2 } \begin{array}{l}\\\end{array} \\\text { Bond 3 } & \text { 1 October 20X3 } & 4.40 \% \text { annual } & \text { Putable at par on 1 October 20X1 } \\ &&&\text { and on 1 October 20X2 }\end{array}$
The one-year, two-year, and three-year par rates are 2.250%, 2.750%, and 3.100%, re-spectively. Based on an estimated interest rate volatility of 10%, ferguson constructs the bino-mial interest rate tree shown in Exhibit 2.
EXHiBiT 2 Binomial interest Rate Tree
on 19 october 20X0, ferguson analyzes the convertible bond issued by Pro Star given in Exhibit 3. That day, the option-free value of Pro Star's convertible bond is $1,060 and Pro Star's stock price is $37.50.
EXHiBiT 3 Convertible Bond issued by Pro Star, inc.
$\begin{array} { l c } \text { Issue Date: } & 6 \text { December 20X0 } \\\hline \text { Maturity Date: } & 6 \text { December 20X4 } \\\text { Coupon Rate: } & 2 \% \\\text { Issue Price: } & \$ 1,000 \\\text { Conversion Ratio: } & 31\\\hline\end{array}$
-The call feature of Bond 2 is best described as:

• A) European style.
• B) American style.
• C) Bermudan style.

---

Definitions:

Demands

Refers to the requirements or needs that must be met in various contexts, such as job demands in the workplace.

Environment

Environment refers to the surroundings or conditions in which a person, plant, or animal lives or operates, encompassing both natural and built settings.

MMPI-2

The Minnesota Multiphasic Personality Inventory-2, a widely used psychological assessment tool designed to evaluate a variety of psychological conditions and personality attributes.

Scales Included

Indicates that specific scales or measurements are part of a study, test, or assessment tool.