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Why is this 0.25? Should it be 6 months divided by 1 year and thus 0.5? Please do not plagiarize! There is an answer for
Why is this 0.25? Should it be 6 months divided by 1 year and thus 0.5?
Please do not plagiarize! There is an answer for this question on chegg and it is WRONG. If you just copy that answer I will report you for plagiarism.
1. A Treasury bond reaches maturity in 9 months. Assume that the Treasury bond has a coupon of 3% and the current price of the bond is $99,500. Solution: a. Estimate the bond's yield to maturity (based on continuous compounding) using an iterative procedure and a starting value of 0.04. b. Verify that your estimate for the yield to maturity produces a bond value that is within $10 of the current market price. 0.03 2 Last payment = 100,000+ 1500 = $101,500 10.23)+ 99,500 = 1,500e-y*0.25 +101,500e-y*0.75 f(y) = 1,500e-y*0.25 + 101,500e-y*0.75 - 99,500 f'(y) = 1,500e-y*0.25 * 0.25 + 101,500ey*0.75 * -0.75 coupon payment in 6 months = * 100,000 = $1,500 1. A Treasury bond reaches maturity in 9 months. Assume that the Treasury bond has a coupon of 3% and the current price of the bond is $99,500. Solution: a. Estimate the bond's yield to maturity (based on continuous compounding) using an iterative procedure and a starting value of 0.04. b. Verify that your estimate for the yield to maturity produces a bond value that is within $10 of the current market price. 0.03 2 Last payment = 100,000+ 1500 = $101,500 10.23)+ 99,500 = 1,500e-y*0.25 +101,500e-y*0.75 f(y) = 1,500e-y*0.25 + 101,500e-y*0.75 - 99,500 f'(y) = 1,500e-y*0.25 * 0.25 + 101,500ey*0.75 * -0.75 coupon payment in 6 months = * 100,000 = $1,500Step by Step Solution
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