# ex-coupon and cum-coupon in binomial tree?

I must have missed that somewhere, how do you calculate that? Where do they come up with the value of \$110.8571 on page 341 (problem 27 of FI)?

can you post the entire problem? Otherwise I can look at it, after I get back…

It’s a whole table on full page and the main problem I have is that they show nodes with bond price as you expect it if you discount the cash flows as usual, then they show another price called ex-coupon or cum-coupon, terminology that I haven’t seen before!

ex-coupon, cum coupon is nothing new. at every point you are provided the par value (e.g. 100\$ when you start from the right). – this is ex-coupon. You are given coupon=5.75\$ e.g. 100+5.75=Cum-Coupon. you discount cum-coupon prices at the interest rate in the previous node. Method 1: take average of price at previous node. add coupon rate. Method 2: (or take price+coupon at each node, then average out). both of these steps are exactly the same. If you see the tree provided - everywhere Cum-Coupon=ex-coupon+8 (which is coupon).

you are a great help cpk…I have no idea what threw me off… I’m looking at \$102 and +8 and keep wondering where \$110 comes from! That was weird!