Sponsored Ads
D.W. Simpson
Worldwide Actuarial Recruitment
Life Health Pension Casualty US Asia Australia Europe Salary Apply
Ezra Penland Actuarial Recruiters
Top Actuary Jobs
Salary Surveys Apply Bios Casualty Health Life Pension
Pauline Reimer, ASA, MAAA
Pryor Associates
Actuarial Openings: Life, P&C, Health, Pensions, Finance
Advertise Here
Contact us at actuary@actuary.com or 770-425-8576
Reach top actuarial professionals

Results 1 to 2 of 2

Thread: price between coupon daes

  1. #1
    Actuary.com - Level I Poster
    Join Date
    May 2010
    Posts
    8

    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. #2
    Actuary.com - Level I Poster
    Join Date
    Jan 2010
    Posts
    9
    Quote Originally Posted by franklin View Post
    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.

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. ASM 7.12 -Strike Price Definition
    By drscelato in forum SOA Exam MFE - Actuarial Models, Financial Economics - with practice exam problems
    Replies: 2
    Last Post: October 1st 2009, 08:31 AM
  2. Market Price vs Purchase Price?
    By stedwick in forum SOA Exam FM / CAS Exam 2 - Financial Mathematics - with practice exam problems
    Replies: 9
    Last Post: May 24th 2008, 09:08 PM
  3. Bond price in between coupons
    By Bluefusion in forum SOA Exam FM / CAS Exam 2 - Financial Mathematics - with practice exam problems
    Replies: 9
    Last Post: May 27th 2007, 07:11 PM
  4. Easy question but tricky wording.. (Stock price)
    By skywalker in forum SOA Exam FM / CAS Exam 2 - Financial Mathematics - with practice exam problems
    Replies: 1
    Last Post: November 7th 2005, 09:06 PM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •