CFAI Typo for Backward Induction Question???

CFA Level II Fixed Income
#1

CFAI’s Reading 36 Question 13: The value of Bond C at the upper node at Time 1 is closest to:

Given information:

Bond C: This is a 2.5%, 2 year, annual pay bond. There is no mention of embedded options.

Binomial Interest Rate Tree:

Time 0 Time 1 Time 2

1.5% 2.8853% 2.7183%

1.75% 1.6487%

1%

My steps:

Cash Flow Tree:

Time 0 Time 1 Time 2

0 2.5 102.5

2.5 102.5

102.5

My answer:

Price(N1-1) = 0.5 * (102.50/1.028853 + 102.50/1.028853) + 2.5 = 102.1255053

However, the official answer does NOT add the value of the coupon payment at the beginning of t=1:

Price(N1-1) = 0.5 * (102.50/1.028853 + 102.50/1.028853) = 99.6255

What is even more odd is that for the next question, you can see CFAI calculated the Time 1 upper node with a coupon added to the end. The only difference is that this bond is a 3-year bond, but I really don’t see how that would change the formula for computation at the upper node of Time 1???

Your insight would be appreciated.

P.S. There is an additional typo for Reading 36 Question 2. They listed the answer as C, even though they say option C is wrong later. The answer should be B. Not happy with the typos …

#2

Nothing in the Errata regarding Problem #13, they talk about Problems 1-6 though.

#3

It doesn’t make any sense to NOT add the coupon payment for a node at t=1 when there are no embedded options.

#4

I had the exact same problem. Is this a typo or just some logic that I don’t follow?

#5

haven’t u already reflected the coupon when you took that value to be 102.5 ?

then why are you adding the 2.5 again?

#6

I am having this same problem. I have doing FI for the past few weeks and this is the last place in my notes that I’m still lost on. Because if you look at EOC #14 right below this, they do use the coupon payment at every node to get the value. This same issue comes up in the Wiley practice questions. I just cant identify the difference of when you use the coupon and when you dont!