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part(a)
AAA rating bond is to be redeemed in 3 years
Where as A rating bond is to be redeemed in 5 yearsWhen calculating the fall in the value of bond we took 3 years for A rating bond
instead of 5 years , is it comparing like with it ?part(b)
$5 x 1·0385–1 + $5 x 1·0446–2 + $5 x 1·0507–3 + $5 x 1·0580–4 + $105 x 1·0612–5 = $95·72i have use the same technique as above for the coupon rate of 6% , is it valid
part(d)
is it still valid for syllabus , i am using BBP june 17 kit(a) We are not comparing anything. To calculate the value we discount for three years at the relevant spot rates for the new credit rating.
(b) Yes, but you have to calculate the 6%
(d) This part was not asked in the original exam question. It was never mentioned in the syllabus, but could be asked because there is nothing to learn – it is simply sticking figures in a formula that is given in the question. I doubt it would be asked in the exam.
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