《1 Note on Bond Valuation and Returns》.pdf
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5-205-010
J U L Y 1 9 , 2 0 0 4
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G E O R G E C H A C K O o
P E T E R H E C H T
V I N C E N T D E S S A I N
M O N I K A S T A C H O W I A K P
Solutions for Problem Set in r
“Note on Bond Valuation and Returns”
The problem set from “Note on Bond Valuation and Returns” is repeated below, after which the
o
solutions are presented.
Problem Set y
Problem 1. On page 4 in the reading note, we quickly said that equation [3] was a handy
shortcut for pricing a bond, and that it could be derived from equation [2]. In other words, we
claimed: p
⎛ 1 ⎞
o ⎜ 1− ⎟
n C M ⎜ (1+ y )n ⎟ M
P = ∑ t +
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