Valuing the Call Feature Consider the prices of the following three Treasury issues as of February 24, 2009:
6.500 | May 13 | 106:10 | 106:12 | ‒13 | 5.28 |
8.250 | May 13 | 103:14 | 103:16 | ‒3 | 5.24 |
12.000 | May 13 | 134:25 | 134:31 | ‒15 | 5.32 |
The bond in the middle is callable in February 2010. What is the implied value of the call feature? (Hint: Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?)
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