SOA Exam FM Sample Question 417
Study guide: Exam FM-2
A non-callable n-year 5000 face amount annual-coupon bond has a price of 4361, an annual coupon rate of 5%, and an annual effective yield rate of 6%.
Another n-year 5000 face amount annual-coupon bond, with an annual coupon rate of 5%, is callable at par at the end of any year from the (n - 10)th year to the nth year, inclusive.
Calculate the maximum price that an investor should be willing to pay for the callable bond, to guarantee at least a 6% annual effective yield rate.
- A) 3944
- B) 3948
- C) 3967
- D) 4361
- E) 4514
Answer this question and see the worked solution