Bond Price

[Ludwma]

Hi David,

In the example 170.3, you use PMT = 20 even if the coupon is computed with a basis ACT/ACT so I think that the coupon payment should not be always 20. Is this an approximation or am I missing something?

Thanks,

FS

 

[David Harper CFA FRM]

Hi FS,

I think the $20 is okay, by using PMT = 20, we are assuming 2 periods per year, $20 each period (1/2 of 40%) which is robust to the day count; i.e., $20 per semiannual period would be correct for act/act, act/360 or 30/360.

Here is the underlying XLS: http://db.tt/2gi73MqD

There is an issue as to why I can get either $928.77 (answer given, i think consistent with Hull, so I think it's okay) versus $928.70 in Cell F30; my gut is telling me that this discrepancy could be related to your point, but I've got to record T5 video now, or I'd hover on it. Thanks,