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Postby nivethasridhar3 » Mon Apr 25, 2016 9:24 am

Given interest rates at th 2- stages of the binomial tree,

When calculating the value of the bond at period 2, using the financial calculator, after you get the PV of the bond, while doing weighted average of bond price and discounting it back to stage 1 using the destination cell's discount rate , why are we adding the coupon back to the PV?

Refer slide 468, in derivatives section. (adding coupon of 60)

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Re: Derivatives-

Postby edupristine » Sat May 07, 2016 7:47 am

Hi Nivethasridhar

at Binomial tree the coupon will add to PV, because coupon is added at the time period and it will be added at the certain time period.

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