Question

The function s(t) = 0.02 + 0.004t gives the effective annual rate of a zero coupon...

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.

Homework Answers

Answer #1
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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