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Could you plz explain how we solve (n) and (k) ?? Treasury Bond Pricing • Pricing...

Question:

could you plz explain how we solve (n) and (k) ??Treasury Bond Pricing • Pricing between coupon dates - adjust for final coupon payment Example: Treasury Bond Pricing • An ex

Treasury Bond Pricing • Pricing between coupon dates - adjust for final coupon payment Example: Treasury Bond Pricing • An existing Treasury bond has been issued with a face value of $1000. The bond pays half-yearly coupons of 7% p.a., and matures on 15 November 2017. Assume that the bond is sold on 15 July 2014. Current yields for similar Treasury bonds are 8% p.a. • Calculate the price of the bond in the secondary market. Example: Treasury Bond Pricing Hence we can determine the relevant inputs into the formula as follows: - Coupon payment (C) = 7%/2 x $1000 = $35 - Face Value (A) = $1000 - Interest rate (i) = 8%/2 = 0.04 - k (fraction elapsed) = 61/184 (see next slide) - n(number of periods remaining) = 7 (see next slide) P-C1-(1+1) +A(1+y)(1+* whore: i-the nominal interest rate per period expressed as a decimal the number of coupon periodo R the traction of the elapsed interest period since the last coupon payment C-periodio coupon payments A = the face value of the bond Flinders Flinders Flinders LAMPIC leasury Dume Cing Example: Treasury Bond Pricing Number of periods Number of days since last remaining (n): coupon as fraction (k): Example: Treasury Bond Pricing . So plumbing the numbers in Days Held Total days May '16 16 p={(142=//="]= (1+1)+"ya+y* ncial calculator but most uts would be very 15 Nov 14 15 May 15 15 Nov 15 15 May 16 15 Nov 16 15 May 17 15 Nov 17 P s3s 1-(1+0.04)-7 04)-7 (1+0.04)184 0.04 = [$210.07 +$759.92]1.013087 -$982.68 VAPP ride 969 V1.4 0.3315 in), COMP] (FV] Flinders Flinders Flinders

Answers

As the bond is sold on 15 July 2014, and next coupon will be 15 November 2014
Days left till next coupon=61
Total Days between 2 coupon dates=Days from 15 May 2014 to 15 November 2014=184

Hence, k=61/184

n=Number of coupons to be paid from next coupon date till maturity=7

.

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