A Commodity Linked Bond Is Issued with an Embedded Call

question 5

Multiple Choice

A commodity linked bond is issued with an embedded call option.The current commodity price is $110,as is the exercise price on the call option.The call option is priced at $3.41.If the promised payment on the bond is the same as the issue price of $100,what is the implied coupon if effective interest rates are 3.0% and the bond has a 1-year maturity?

• A) $0.66
• B) $0.77
• C) $0.88
• D) $0.99

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Definitions:

Effective Letter

A written communication that clearly conveys its intended message and achieves its purpose with the recipient.

Termination Letters

Written notifications from an employer to an employee stating the end of the employee's job within the company.

Controversial

Something that gives rise to public disagreement or debate.

Psychographics

Psychological characteristics of an audience, including personality, attitudes, and lifestyle.