Revision as of 22:28, 19 November 2023 by Admin (Created page with "'''Solution: A''' Since the coupon rate per coupon payment period 4% is greater than the effective rate of interest per coupon payment period 2.9563%, it is to the disadvantage of the bond holder to have the bond redeemed at an early date. Hence, we only need to calculate the present value of such a bond at the worst-case scenario, which is that the bond is called at the end of the 5 th year. <math display = "block"> \begin{aligned} & P=4 a_{100.029563}+100 v^{10} \\...")
Exercise
ABy Admin
Nov 19'23
Answer
Solution: A
Since the coupon rate per coupon payment period 4% is greater than the effective rate of interest per coupon payment period 2.9563%, it is to the disadvantage of the bond holder to have the bond redeemed at an early date. Hence, we only need to calculate the present value of such a bond at the worst-case scenario, which is that the bond is called at the end of the 5 th year.
[[math]]
\begin{aligned}
& P=4 a_{100.029563}+100 v^{10} \\
& P=108.92
\end{aligned}
[[/math]]
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