Explanation:
6-month discount factor:
Price = coupon + principal × discount factor₆ mths
99.2656 = 3 + 100 × DF
99.2656 / 103.00 = DF
0.9637 = DF
12-month discount factor:
Price = C × DF₆ mths + (C + P) × DF₁₂ mths
97.4219 = 3.5 × 0.9637 + 103.50 × DF₁₂ mths
(97.4219 − 3.37) / 103.50 = DF₁₂ mths
0.9087 = DF₁₂ mths
(Book 4, Module 56.2, LO 56.b)
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Question 15
Given the following bond prices, what is the 12-month discount factor, assuming semiannual compounding?
| Maturity | Coupon | Price |
|---|---|---|
| 6 months | 6% | 99.2656 |
| 12 months | 7% | 97.4219 |
| 18 months | 8% | 101.9375 |
A
0.9087.
B
0.9108.
C
0.9212.
D
0.9301.
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