Fixed Income - Desna case

Hey guys

I hope someone could help me with my question.

I really have difficulties understanding Q4 of the Desna case. Why do they add another coupon of 2.8 when they discount?

Why is it not .5*(102.8+102.8)/1.0456 = 98.317?

It is an annual coupon??

Many thanks!!!


They’re just pre-adding the coupon to the T=1 nodes. Notice on the v_u_ and v_d_ nodes they are not adding the coupons to the price they calculated previously. I personally don’t do it this way, as it can mess you up when evaluating callable and putable bonds, but doing it either way will get you to the same answer.

This analyogical issue is almost funny.


Sweet, sweet vindication.