Revision as of 19:14, 19 November 2023 by Admin (Created page with "'''Solution: B''' Let r be the coupon rate for Bond A. The coupon rate for Bond B is then r + 0.01. Then, <math display = "block"> \begin{align*} 1600=1000\left[\frac{1}{(1.1)^{20}}+r a_{\overline{{{20}}}|0.1}+\frac{1}{(1.1)^{20}}+(r+0.01)a_{\overline{{{20}}}|0.1}^{}\right] \\ 1.6=\frac{2}{(1.1)^{20}}+2r a_{\overline{{{20}}}|0.1}+0.01a_{\overline{{{20}}}|0.1}+0.01a_{\overline{{{20}}}|0.1}=0.29729+17.02713r+0.08514 \\ r=\frac{1.6-0.29729-0.08514}{17.02713}=0.0715=7.15\%...")
Exercise
ABy Admin
Nov 19'23
Answer
Solution: B
Let r be the coupon rate for Bond A. The coupon rate for Bond B is then r + 0.01. Then,
[[math]]
\begin{align*}
1600=1000\left[\frac{1}{(1.1)^{20}}+r a_{\overline{{{20}}}|0.1}+\frac{1}{(1.1)^{20}}+(r+0.01)a_{\overline{{{20}}}|0.1}^{}\right]
\\
1.6=\frac{2}{(1.1)^{20}}+2r a_{\overline{{{20}}}|0.1}+0.01a_{\overline{{{20}}}|0.1}+0.01a_{\overline{{{20}}}|0.1}=0.29729+17.02713r+0.08514 \\
r=\frac{1.6-0.29729-0.08514}{17.02713}=0.0715=7.15\%.
\end{align*}
[[/math]]
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