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My question is: where does the 100 come in the cash flows?
the par value is $10,000 and interest is taken as coupon% x par value, which means the cash flows are c% x 10,000 for the 5 years.
i understand the rest of this part.
thanks in advance!
It is only there so that ‘c’ comes out as a %.
By all mens leave out the 100, and then you will get ‘c’ to be 662 (which is 6.62% of 10,000).
This was typical of the previous examiner – he set a lot of very strange questions, and a lot of confusing answers! (The current examiner took over is 2010 and is much much better)
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