Time Value of money question

pinalkaria87
Posts: 5
Joined: Thu Oct 04, 2012 11:12 pm

Time Value of money question

Postby pinalkaria87 » Wed Oct 10, 2012 12:22 pm

Three different U.S. Treasury notes pay semi-annual coupons and mature in exactly one year; i.e., each pays the next coupon in six months and matures six months subsequently. The price of Bond A with a coupon rate of 2.0% per annum is $99.02 and the price of Bond C with a coupon rate of 7.0% per annum is $103.91. If Bond B has a coupon rate of 4.0% per annum, what is the price of Bond B?

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swarnendupathak
Finance Junkie
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Joined: Mon Sep 17, 2012 11:06 am

Re: Time Value of money question

Postby swarnendupathak » Thu Oct 11, 2012 5:05 pm

Hi,
Calculate the yeild of the bond by trial & error method which would be approx 3.02% & compute the price of the bond B with that. The price of bond B would be nearest to $ 100.98

Regards
Swarnendu

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shreyas
Finance Junkie
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Joined: Thu Jul 19, 2012 6:49 pm

Re: Time Value of money question

Postby shreyas » Tue Oct 16, 2012 6:43 pm

Swarnendu is correct. The yield is to be calculated by trial and error method. But in exam you will be given with option which will be logically correct, thus eliminating the rest three options.


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