DAA 2105 Lecture Notes - Lecture 4: Cash Flow, Arbitrage
Document Summary
Price 7 bond a bond 13 & bonde = face vel bond a & 100+ coupon t=1 t=o 0. 04 yield = 41. prico 7 bond a = oto (1+0. 04)" rate =oy. Coupon = 0 since coupon 100 . 1538 bond b. lootu 4 + t=0 t=1 t=2 field = Now bond a + t=0 100 +0 + t=1 vield = 4%, coupon rate = 07. price 7 bond a = . 1538 pa = (1+s) spot interest s, = 1. 04 4%. since (1+s, ) = 96. 1838 s = s, = 0. 04 v 44. + 99. 0637 = 2 +2 1. 04 104 99. 063 4 1. 04 = 99. 0637 -3. 8462 104 95. 2175 2 = (1+52) 2 104 - 95. 2175 = 1. 0922. 11 5 5 100+5 bond c 1 1 t-o t=3 t=2 yield = 5%. Dond c synthetically creat zero coupon bond with matunt of 3 yean por role of ploo + t=3 too t=1.
