sir, for example,
3yr semi-annual Bond Face value = 5m
nominal rate = 10%
market rate = 12%
It appears I cant use discount method like this
250000/1.12^0.5 + 250000/1.12^1 + 250000/1.12^1.5 ...
But i have to do like this
250000/1.06^1 + 250000/1.06^2 + 250000/1.06^3 ...
why cant i use the above method? i see it is not wrong.
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bond pricing discount
https://www.accaglobal.com/gb/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/international-project-appraisal.html
I saw this TA and learned that 6 months can be discounted using ^0.5
6y ago#2Yes - using ^0.5 etc is the correct method :-)
But sir, n=number of periods and if i use 0.5 method for bond calculation, it is wrong. I would like to know why we cant use 0.5 method to find issue price of bond, when it seems very acceptable for me.
Does this mean that, since n = number of periods, the discount rate for 6months in Technical article above should be as (1/1.06^1)?
6y ago#5But the answer in the article does use ^0.5 to do the discounting for 6 months, as I wrote in my previous reply.
The discount factor for 6 months (half a year) is 1/1.12 ^0.5
The discount factor for 18 months (1.5 years) is 1/1.12 ^1.5
and so on.
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