Some bonds have irregular first coupons.
· A long first coupon is paid on the second anniversary date of the bond and starts accruing on the issue date. So, the first coupon value is greater than the normal coupon rate.
· A long first coupon with regular value is paid on the second anniversary date of the bond and starts accruing on the first anniversary date. So, the first coupon value is equal to the normal coupon rate.
· A short first coupon is paid on the first anniversary date of the bond and starts accruing on the issue date. The first coupon value is smaller than the normal coupon rate.
· A short first coupon with regular value is paid on the first anniversary date of the bond and has a value equal to the normal coupon rate.
Consider the four following bonds with nominal value equal to 1 million euros and annual coupon frequency:
· Bond 1: issue date 05/21/96, coupon 5%, maturity date 05/21/02, long first coupon, redemption value 100%;
· Bond 2: issue date 02/21/96, coupon 5%, maturity date 02/21/02, long first coupon with regular value, redemption value 99%;
· Bond 3: issue date 11/21/95, coupon 3%, maturity date 3 years and 2 months, short first coupon, redemption value 100%;
· Bond 4: issue date 08/21/95, coupon 4.5%, maturity date 08/21/00, short first coupon with regular value, redemption value 100%.
Compute the future cash flows of each of these bonds.