Exercise . Consider a coupon bond with payments Yi at time Ti = i, i =

, ... , n, such that is there is a payment of Y in  year, a payment of Y in  years, and so on. Suppose you discount all future payments with a constant, annually compounded interest rate of r. Let B denote the present value, that is B = n i=

Yi( + r)

−i

.

(a) Show that if the bond is a bullet bond with a coupon rate of R and a face value of , then B = R r

+

 − R r



( + r)

−n.