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# Mini case 2

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Solution
By discounting technique, we know that for one year maturity bond
P
1
= (100+ C
1
)/ (1+y
1
)
99.50 = 105/(1+y
1
)
1+y1 = 105/99.5
1+y1 = 1.0553
Y
1
= 0.0553
i.e equal to 5.53%
z
1
= 1/(1+y
1
) = 1/(1+0.0553) = 0.9476
Using these value in similar equation for two year maturity bond, we get
P
2
= C
1
/(1+y1) + C
2
/(1+y
2
)
2
101.25 = 6/(1+0.0553) + 106/(1+y
2
)
2
101.25 = 5.6856 + 106/(1+y2)
2
101.25- 5.6856 = 106/(1+y2)
2
95.5644 = 106/(1+y2)
2
(1+y2)
2
= 106/95.5644
(1+y2)
2
= 1.1092
1+ Y2= (1.1092)
1/2
1+ Y2= 1.05319
Y
2
= 0.05319 or 5.32%

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Solution By discounting technique, we know that for one year maturity bond P1 = (100+ C1)/ (1+y1) 99.50 = 105/(1+y1) 1+y1 = 105/99.5 1+y1 = 1.0553 Y1= 0.0553 i.e equal to 5.53% z1= 1/(1+y1) = 1/(1+0.0553) = 0.9476 Using these value in similar equation for two year maturity bond, we get P2= C1/(1+y1) + C2/(1+y2)2 101.25 = 6/(1+0.0553) + 106/(1+y2)2 101.25 = 5.6856 + 106/(1+y2)2 101.25- 5.6856 = 106/(1+y2)2 95.5644 = 106/(1+y2)2 (1+y2)2 = 106/95.5644 (1+y2)2 = 1.1092 1+ Y2= (1.1092)1/2 1+ Y2= 1.05319 Y2= 0.05319 or 5.32% Z2= 1/(1+0.05319)2 Z2= 0.9015 Similarly for three year maturity bond 1 ...
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