CFAI online Fixed Income-Wingaersheek Arbitrage Opportunities Case Scenario
May I ask Q. Using the backward induction method and the data in Exhibit 2, the value of the bond Hake has been asked to value is closest to:
In the solution it says the following for Time 2 value, but why we don’t add the coupon payment of $4 to 99.522/100.726/101.612? Isn’t it making more sense to include the coupon into the valuation?
[ We calculate the present value of the bond at Time 2 using the three forward rates found in Exhibit 2:
104/1.0450 = 99.522
104/1.0325 = 100.726
104/1.0235 = 101.612
Thanks for your help in advance!
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