06-26-2010, 06:08 PM
Idea Solution For Question 2
NPV Bond Pricing Equation: vu handout page#123
Bond Price = PV = C1/ (1+rD) + C2/ (1+rD) t2+ C3 / (1+rD)t3 +….. + PAR / (1+rD)n3
Where
Pv = Bound value
C= Coupon payment Pa = 2000*10.100= 200 C1 ...C2 For each year
rD= Required rate of return = 14%=0.14
PAR = Par value or face value= 2000
Maturity period
Bound A = t 3 n3
Bound B = t 5 n5
NPV Bond Pricing Equation: vu handout page#123
Bond Price = PV = C1/ (1+rD) + C2/ (1+rD) t2+ C3 / (1+rD)t3 +….. + PAR / (1+rD)n3
Where
Pv = Bound value
C= Coupon payment Pa = 2000*10.100= 200 C1 ...C2 For each year
rD= Required rate of return = 14%=0.14
PAR = Par value or face value= 2000
Maturity period
Bound A = t 3 n3
Bound B = t 5 n5