CFA CFA Level 2 binomial tree – help

binomial tree – help

  • This topic has 1 reply, 2 voices, and was last updated Sep-18 by googs1484.
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  • nfonseca
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    Is the value of a bond in a node except for time0 is 0.5 * [(Vu + C)/(1+r) + (Vd + C)/(1+r)], for time0 is 0.5 * [(Vu)/(1+r) + (Vd)/(1+r)]

    Half the time the curriculum says the Value is formula (except time0) plus the
    current coupon, other times the coupon is left out.

    Can someone explain
    the reasoning?

    googs1484
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    if it is a coupon paying bond then you MUST include it. Not all bonds pay coupons. In short, if theres a coupon then include it, if not then don’t.

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