INV problem 3 question 2 The spot rate for the first year, the forward rate for the second year, and the forward rate for third year are 5.2%, 5.4%, and 5.5%, respectively. What must be the price of a three-year Government of Canada 6% annual coupon bond?
INV problem 3 question 2 The spot rate for the first year, the forward rate for the second year, and the forward rate for third year are 5.2%, 5.4%, and 5.5%, respectively. What must be the price of a three-year Government of Canada 6% annual coupon bond?
Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates
Section: Chapter Questions
Problem 26QA
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INV problem 3 question 2
The spot rate for the first year, the forward rate for the second year, and the forward rate for third year are 5.2%, 5.4%, and 5.5%, respectively.
- What must be the price of a three-year Government of Canada 6% annual coupon bond?
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solve it using this method:
S2 = (((1+S1)*(1+F2))1/2 )– 1
S3 = ((1+S1)*(1+F3)) 1/3 - 1
P = 50/(1+S1)+50 / (1+S2) 2 + 1050 / (1+S3) 3
and find the value of p
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