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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