I’m studying with the new material from Wiley, but I’ve found some (I think) inconsistencies:
A) volume 1 page 59: the formula at the center of the page should be 1000/(1+0.065/2)=968.52 and not 1000(1+0.065/2)…
B) volume 1 page 59: last formula on the page, why using the 1-year spot rate to discount back to 0 from the 6-months node? using the 6-months spot rate should be the right path, or am I missing something?
C) volume 1 page 61: it states that the price of 1 year zero has ALREADY been solved to be $940.31, I triple checked all the previous pages and there is no single line where this number has already come up…
D) volume 1 page 66: “a callable 5-year bond with the same credit will trade at a lower yield and a higher price than a non callable bond” shouldn’t it be: “a callable 5-year bond with the same credit will trade at a higher yield and a lower price than a non callable bond” --> the call option is sold from the investor to the issuer and it should lower the bond price and increasing the yield, or again, am I missing something?
a bit disappointed of having to double check everything somewhere else…
anyone using the books have already seen that, what do you think?
Hey @nickybad, It is always better to reach out to me or Wiley because 9/10 we have already found and fixed these and save you a bit of time. I get how frustrating it can be and we have significant resources making sure these don’t make the final text and fixing them when they are found.
A) You are right, that is missing a divide sign
B) You are making the common mistake I am trying to get candidates to avoid. Look at the last paragraph of on page 58. We are pricing a full year zero coupon bond, not a 6 month bond. Discounting 6 month cash flows at the 6 month rate would give you a 6 month zero. This is the fundamental difference between simply discounting cash flows and risk neutral probability that I go into in the following LO.
C) You are not missing anything and this is also something I have fixed. I am trying to show here the best way to look at the value of a bond with an option is who owns the option but my language here was clumsy. As written, if we assume the call option is sold from the investor point of view it would lower the bond price and should be “higher yield / lower price”. For intuition purposes, always think about who owns the option and ownership means they bought something and had to pay for it. Reach out anytime,
Thank your for your reply.
any chance to have a link to the errata of the book (pdf or html page)?
I do but want to respect Analyst Forum’s wishes of no link to out side websites. Contact me or Wiley and we’ll be happy to email you.