Calculating a loan/bond without a maturity date

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wonhyuns

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Dear fellow analysts,
How would one go by in valuing a loan without a specific maturity due date but it’s payable on demand by bondholder and also the bond seller has the option to repay the loan at any time?
Thanks!
 
I don’t think that would ever happen in the market.
And what do you mean by “the bond seller has the option to repay the loan at any time”? You mean the seller (lender) has the option to ask the money back? So, the bond would be callable and putable at any time, and there is no maturity?
Good luck with your tp analysis man…
 
sharky7 wrote:I don’t think that would ever happen in the market.
And what do you mean by “the bond seller has the option to repay the loan at any time”? You mean the seller (lender) has the option to ask the money back?
Click to expand...
The seller of a bond is the borrower, not the lender.
The purchaser of the bond is the lender.
 
wonhyuns wrote:Dear fellow analysts,
How would one go by in valuing a loan without a specific maturity due date but it’s payable on demand by bondholder and also the bond seller has the option to repay the loan at any time?
Thanks!
Click to expand...
With nothing to go on other than what you’ve written, I’d say that it has to be valued at face amount: par.
If the value were below par, the bondholder would demand repayment (at par).
If the value were above par, the issuer would repay it (at par).
 
sounds like the question setter is disguising a repo agreement? that would be my guess anyway.
no idea how they are priced. I’d start at the capital requirement for the bank, then take the lending rate of that.
(of course that means the loan is secured)
for unsecured lending.. something like an overdraft facility..??
could also be referring to the discount window loans? 50bps over fomc.. some ideas for you there..
 
Thanks S2000. That’s what I thought initially, but didn’t make sense to me due to the time value of money.
 
Perpetual Frn’s have a term rate fixing without a definitive maturity date.
 
S2000magician wrote:
sharky7 wrote:I don’t think that would ever happen in the market.
And what do you mean by “the bond seller has the option to repay the loan at any time”? You mean the seller (lender) has the option to ask the money back?
Click to expand...
The seller of a bond is the borrower, not the lender.
The purchaser of the bond is the lender.
Click to expand...
My bad, I meant so.
 
wonhyuns wrote:
Thanks, Sharky. It was for a tp analysis.
Click to expand...
It had to be that :)
The problem here would not be the pricing, but the transaction itself. I don’t think we see in the market putable bonds american-style, do we?
 
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