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# Thread: price between coupon daes

1. ## price between coupon daes

ASM Manual section7d

question # 6

A \$100 par value 10 year bond provides 5% semiannual coupons. the yield rate is 4%covertible semiannually.what is the flat price(i.e., the money that atually changes hands if the bond is sold, ignoring expenses) 8.4 years after issue at the same yield rate?

Solution

p=2.50a(4)+100v^4=101.90 at 2%
flat price=101.90(1.02)^.8=103.53

(0.8 is the fraction of on semiannual interest period ater 8 years on which the bond is sold)

please tell me how this 0.8 is taken?

2. Originally Posted by franklin
ASM Manual section7d

question # 6

A \$100 par value 10 year bond provides 5% semiannual coupons. the yield rate is 4%covertible semiannually.what is the flat price(i.e., the money that atually changes hands if the bond is sold, ignoring expenses) 8.4 years after issue at the same yield rate?

Solution

p=2.50a(4)+100v^4=101.90 at 2%
flat price=101.90(1.02)^.8=103.53

(0.8 is the fraction of on semiannual interest period ater 8 years on which the bond is sold)

please tell me how this 0.8 is taken?
Well the price computed in the first line is the value of the bond immediately after the 16th coupon payment (at the beginning of year 8), but the bond isn't sold for another .4 of a year. So you have to accumulate interest for .4 of a year to determine the price. Since interested is quoted on a semiannual basis, you must raise the rate to the fraction of a half year for which interest has accumulated. .4 of a year is equal to .8 of a half year, so the price at time 8 is multiplied by the interest rate raised to .8. Hope that makes sense.