Tuckman-Chapters 1, 2, 3, 4

[gargi.adhikari]

In reference to Tuckman-Chapters 1, 2, 3, 4 :-
I followed all the steps described for deducing the Discount Factor, the SpotRate in case of the first .5 Bond which had a Bond Price of 101.40.

I tried to use the same logic to derive the discount factor for the 2nd Bond with Bond Price= 108.98. I tried calculating 107.13 / 108.98 which gave me .9830 instead of a .9525. Also how did we derive the Discount Function .95247 for the 1 year Maturity Bond ? Can someone please break this down for me while I am still waiting to get access to the Learning Spreadsheets....Am stuck on this ..

Hoping if I understand this 2nd Bond calculations, I should be good with the rest ...

 

[ShaktiRathore]

Hi,
Price(0.5)=101+12.75/32=101.3984375
df(.5)=101.3984375/103.9375=0.97557125676488274203247143716176=.97557
Price(1 year)=108+31.5/32=108.984375=df(.5)*7.125+df(1)*107.125 = 0.97557*7.125+df(1)*107.125
108.984375=6.95093625+df(1)*107.125
=>df=(108.984375-6.95093625)/107.125 = 0.95247=0.9525
thanks

 

[gargi.adhikari]

@ShaktiRathore As always Shakthi - my heartfelt gratitude to you and all other active members for coming to the rescue - I missed the fact we have to factor in the discount factors individually for each interim period. Thanks so so very much ! One quick question though....Where did you get the price Price(1 year)=108+31.5/32....I thought we had the price( 1 yr) to be 108.984375 as a given.... But I do see you calculated that....Thanks for all your inputs

 

[ShaktiRathore]

Hi Gargi,
Yes i got it from the spreadsheet. You can refer to the spreadsheet of the course.This i useed because i was not getting the exact answer however i think that you have got the idea atleast ho i got the answer.
Thanks

 

[gargi.adhikari]

@ShaktiRathore Got it buddy Clear as the sky Thanks so very much. Am so very grateful.