R56 EOC #28 - Bond with call option option, should, price

karoliukas

28. Today’s ex-coupon price of the callable Wentz bond is closest to:
Answer:
C. 105.0263
How could Wentz bond be priced over 104? It is callable tomorrow and the value should be capped by the strike price.

troymo

there is time value of coupon payments which are cash flows

burnsy562000

I understand that if the bond is called, the bondholder wouldn’t receive the coupon. If you are buying the bond today at 105 and tomorrow it’s called at 104, that’s an instantaneous loss.