Hah I do have questions!

CFA Level I
#1

A91 Value a 3 year 6% bond with the following spot rates. The bond pays interest once per year. 1 year spot rate 5.11% 2 year spot rate 5.22% 3 year spot rate 5.33% A $99.49 B $101.15 C $102.18 D $102.74

#2

simple, 6/(1.0511) + 6/(1.0522)^2 + 106/(1.0533)^3

#3

excel gives me 101.83 me thinking something wrong with myself, C? is that it being closest and what not.

#4

agree

#5

i wrote it out and got the same thing

#6

now if those were forward rates, how would your equation change, getter!

#7

I got 101.83 using the CF key on BAII too.

#8

amberpower Wrote: ------------------------------------------------------- > I got 101.83 using the CF key on BAII too. How do you do that?

#9

Year 1 6 / 1 + .0511 6.05 Year 2 6 / (1 + .0522)^2 5.42 Year 3 106 / (1 + .0533)^3 90.71 $102.18 C

#10

6/1.0511+6/1.0511*1.0522+106/1.0511*1.0522*1.0533

#11

Year 1 cannt be larger than 6 when you discount it!

#12

You have to do each rate separately and add them up but it cuts down on math errors: CF0 = 0 CF1 = 6 NPV = 5.11 CPT NPV = 5.71 clear CF CFO = 0 CF1 = 0 CF2 = 6 NPV = 5.22 CPT NPV clear CF same for 3rd rate but put in 106 for CF3 It seems like an awful lot of number crunching but I like it better. add each NPV up. Doesn’t work to FIND spot rates though. Remember to watch out for semi annual cpns and cut the cpn in half!