because the term is so short and only ~5% of the total return was from the period 1 coupon payment. If the term was longer or coupon higher (much higher) then the difference would have been more noticeable.
almost, but it has more to do with the fact that this might be a straight bond, no options, etc.
ummm no, just check the math… increase the coupon to 20% then compare the difference in error. the fact that you discounted incorrectly a much smaller portion of the total cash flow means your error will me smaller. The two things that drive the second period spot price is the discount price and the coupon size.
That will affect it yes, but the whole point of spot rates is when looking at OAS and zspreads, etc.
or bootstrapping…or swaps… or…
No swaps this time. I think I saw it as optional…don’t scare me char-lee.
Sure it is optional, page 364.
sorry, didn’t realize you we’re talking about the CFA level I universe…
why do you double it to get bey? isn’t it already a one year rate?
ryanwtyler Wrote: ------------------------------------------------------- > why do you double it to get bey? isn’t it already > a one year rate? bey = 2*semiannual HPY
right. and the 2nd discount rate is an annual number, right? not semi-annual?
because of the compounding effect u need to count the 6month period, not the years
if it were asking you to calculate the price of a bond with the following spot rates: 6-month 5% 1-year 9% you would p = coupon/5% + (coupon+face)/9%^2 right? you wouldn’t double 9%