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Question 5 The value of a level-coupon bond is given by the formula below: PV= C 1+r + C 1+r 2 ++ C 1+r T

Question 5

The value of a level-coupon bond is given by the formula below:

PV=C1+r+C1+r2++C1+rT+F1+rT

Show that this formula can be simplified to:

PV=C1r-1r1+rT+F1+rT

Hence, calculate the value of a bond worth K10, 000 that was bought at 5% level-coupon bond and is maturing in 18 years time.

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