Let r1 and r2 be two spots rates of a one year coupon bond


Let r1 and r2 be two spots rates of a one year coupon bond and a two year coupon bond respectively. Let P be the price of a two year coupon bond and F is the face value and c is the one annual coupon. Suppose the bond has price P and makes coupon payments of amount c at a 2 yr-bond. Then P = c/(1+r1) + (c+F)/(1+r2)^2. How do we know that the yield y is in between r1 and r2 in the equation P = c/(1+y) + (c+F)/(1+y)^2 ?

Request for Solution File

Ask an Expert for Answer!!
Financial Management: Let r1 and r2 be two spots rates of a one year coupon bond
Reference No:- TGS02336648

Expected delivery within 24 Hours