In the 2010 Practice Exam, Question 18, reproduced below, relates to using the concept of a replicating portfolio to find the current price of a bond.
"The following table gives the price of two out of three US Treasury Notes for settlement on August 30, 2008. All three notes will mature exactly one year later on August 30, 2009. Assume annual coupon payments and that all three bonds (notes) have the same coupon payment date, approximately what would be the price of the 4 1/2 US Treasury Note?
Coupon Price
2 7/8 98.40
4 1/2 ?
6 1/4 101.30"
Referring to the original text (Tuckman, Fixed Income Securities, pp10-12), I understand that we need to consider the par value in addition to the coupon payments, yet in the suggested answer to this sample exam question, it does not consider par
As a consequence, the answer I derived from my computations differs from that in the suggested solution given by GARP
Can someone throw some light on this? Thanks