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Sir i went through the ACCA article on bond valuation and yield. There was this last example showing how to calculate the annual spot rate. However, when i went to bond ‘c’ the results is as follows:
$98 = $5*1.0388 + $5 * 1.0496 + 105*(1+r3)
re= (105/(98-4.81-4.54))-1 = 0.0580 or 5.8% for this part, am not sure how to input this into the calculator to arrive at the 5.8%. Kindly help.
You have written the expression wrongly.
It is: $98 = $5*1.0388 + $5 * 1.0496 + 105*(1+r3)^3
Therefore r3 = (third root of (105/(98-4.81-4.54))-1
Presumably you have a button on your calculator to get the third root. I cannot tell you which order to press the buttons because different calculators do it in a different order.
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