Using the following binomial model of one-year interest rate, price a 2-year, 8% annual-coupon bond with a par value of $895. Assume annual compounding. All rates are expressed on a bond equivalent basis. Round your answer to 2 decimal places. Time 0 io = 2% Time 1 i1.H = 8% i₁L = 4%

Using the following binomial model of one-year interest rate, price a 2-year, 8% annual-coupon bond with a par value of $895. Assume annual compounding. All rates are expressed on a bond equivalent basis. Round your answer to 2 decimal places. Time 0 io = 2% Time 1 i1.H = 8% i₁L = 4%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

Give typing answer with explanation and conclusion

Using the following binomial model of one-year interest rate, price a
2-year, 8% annual-coupon bond with a par value of $895. Assume
annual compounding.
All rates are expressed on a bond equivalent basis. Round your
answer to 2 decimal places.
Time 0
io = 2%
Time 1
i₁.H
i1,L
= 8%
= 4%

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