Unformatted text preview: Answer: (c) 1) The coupon rate which is required in discounting obligation of bonds would have face value of bond on January 1, 2011 and interest payment is due thereafter. Even the coupon rate of interest is known, and then also effected rate should be computed. The coupon rate of interest has to be assumed at the discretion so that there would little support in assuming it as an exact discount rate. 2) The effective rate of interest on January 1, 2011 is the market rate of interest for the long term bond borrowed. It gives the discounted value which is an obligation on bonds of the amount invested on January 1, 2011 at market interest rate. This investment provides sum required in paying the recurring interest and also the principal on maturity date. Therefore, the effective rate of interest on January 2, 2011 is determined and verified. The yield or market interest on the date of interest on January 2, 2011 is determined and verified....
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- Spring '11