Curriculum formula for backward induction 0.5 X [(V+C)/(1+i) + (V+C)/(1+i)] +C
In Schweser the first part of the formula is the same but omits the C at the end… Which one should I use for the exam because the bond values become different
S2000 please help
The formula you have written is not for the value of the bond at a given node.
It’s the formula for the value of the _ portfolio _ at a given node; that portfolio comprises a bond and a coupon payment.
The formula in Schweser gives the value of the bond by itself.
If they ask you for the value of the bond at a given node, don’t add the coupon; that’s not part of the bond’s value.
If they ask you to discount back to today, then at every intermediate node you need the value of the bond and the coupon; use the formula you wrote, above.