Hi,
In ch.10 P.16, there is an example at the bottom where the worst scenario is latest redemption date since there is capital gain
However, when you defer capital gain, you also get 5 more years coupon
So, I try to redo this example with earliest redemption date:
P = 0.75*8*a(2):<10> + 100v^10 @7%
= 6* [1-1.07^(-10)]/[2*(1.07^0.5 - 1)] + 100 * 1.07^(-10)
= 6 * 7.144415392 + 100 * 1.07^(-10)
= 93.70142156
This is higher than the price in the example (91.83). So I think the worst scenario should be 10 years? Did I miss anything? Thanks a lot!
In ch.10 P.16, there is an example at the bottom where the worst scenario is latest redemption date since there is capital gain
However, when you defer capital gain, you also get 5 more years coupon
So, I try to redo this example with earliest redemption date:
P = 0.75*8*a(2):<10> + 100v^10 @7%
= 6* [1-1.07^(-10)]/[2*(1.07^0.5 - 1)] + 100 * 1.07^(-10)
= 6 * 7.144415392 + 100 * 1.07^(-10)
= 93.70142156
This is higher than the price in the example (91.83). So I think the worst scenario should be 10 years? Did I miss anything? Thanks a lot!