Friends, I need help with calculating accumulated value on the coupons. something seemingly so simple is giving me a hard time today. on page 111, vol.6 futures contract expires in 1.25 years and RFR is 6.5%, coupon is 0.035 paid semi-annually. the accumulated value of the coupons and the interest on them according to the text book is: .035(1.065)^.75 + .035(1.065)^.25 = $.0722 how do we get .75? if the first coupon is paid in one-half year and reinvested in three quaters of a year,shouldn’t the first part of the equation be ^.50? many thanks
draw a timeline this is when you are calculating future value of the coupon. you have 0.75 years left that the first coupon accumulates and you have 0.25 left for the 2nd coupon 0------0.5--------1------1.25 |--------|| |------------------|| when you are calculating the PV of the coupon --> first coupon you would divide by ^0.5, 2nd one you would divide by ^1 subtract all that from the Spot price and then multiply the whole by ^1.25 same result finally… though
Thank you very much CP