Regarding the sample problem #50 posted by SOA:
A 1000 bond with semi-annual coupons at i(2) = 6% matures at par on October 15, 2020. The bond is purchased on June 28, 2005 to yield the investor i(2) = 7%. What is the purchase price? Assume simple interest between bond coupon dates and note that:
Date Day of the Year
April 15 105
June 28 179
October 15 288
If we are to assume simple interest, why does the solution use compound interest to determine the price of the bond at April 15?
A 1000 bond with semi-annual coupons at i(2) = 6% matures at par on October 15, 2020. The bond is purchased on June 28, 2005 to yield the investor i(2) = 7%. What is the purchase price? Assume simple interest between bond coupon dates and note that:
Date Day of the Year
April 15 105
June 28 179
October 15 288
If we are to assume simple interest, why does the solution use compound interest to determine the price of the bond at April 15?
SOA 50
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