# nhw8a - Homework 8 1. A. Calculate the value of a 3 year 8%...

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Homework 8 1. A. Calculate the value of a 3 year 8% coupon bond with semiannual payments, 1000 par. Expected return is the risk free rate of 3%. (40/.015)*(1-1/(1+.015)^6)+1000/(1+.015)^6= 1142.429679 B. If in 50 days the next coupon will be paid, what is the accrued interest, if there are 182 days in a semiannual coupon period? 40((182-50)/182)=29.01098901 C. Note: For this question the inflation rates are actual inflation levels ( so a 6 month inflation rate increase of 3% increases par by 3%, not 1.5%.) You have a semiannual treasury inflation protected security, which is 1000 par and sells at par, with a 4% coupon rate. If the inflation rates are: 2% for the first 6 months and then 4% for the second, 3% for the third and 2% for the fourth 6 months, find: -What are the individual nominal payments made for each time period? Period inflation par coupon payment 0 1000 1 .02 1020 20.4 2 .04 1060.8 21.216 3 .03 1092.624 21.85248 4 .02 1114.476 22.28952 At time 4 there is also the payment of 1114.476 -What is the total amount paid including par? 1114.476+20.4+21.216+21.85248+22.28952=1200.234

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## This note was uploaded on 10/15/2011 for the course ECON 171 taught by Professor Hull during the Spring '09 term at Brandeis.

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nhw8a - Homework 8 1. A. Calculate the value of a 3 year 8%...

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