The function s(t) = 0.02 + 0.004t gives the effective annual rate of a zero coupon bond of maturity t, with t in years. Find the price of a 2 year coupon bond with semiannual coupons of 6% and a face/redemption value of $700,000. |
s(t) = 0.02 + 0.004t | |||||||
Bond = | |||||||
N= | 2 years | ||||||
Coupon Rate = | 6% | ||||||
Face Value = | 700000 | ||||||
Price of a bond = | PV of Cashflows | ||||||
Time | Rate | Cashflows | PV Factor | Pv of CF | |||
a | b | c | d = 1/(1+Rate)^t | e= d x c | |||
0.5 | 0.022 | 21000 | 0.989178 | 20772.74 | |||
1 | 0.024 | 21000 | 0.976563 | 20507.81 | |||
1.5 | 0.026 | 21000 | 0.96223 | 20206.83 | |||
2 | 0.028 | 21000 | 0.946267 | 19871.61 | |||
2 | 0.028 | 700000 | 0.946267 | 662387 | |||
743746 | |||||||
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