First set the global evaluation date to January 1, 2005.
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Construct a coupon that pays the fixed rate of 5%. The accrual period starts on January 3, 2006 and ends on January 3, 2010.
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Compute the value of this cash flow on January 3, 2005.
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Here is another way to compute this. First, compute the accrued interest.
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This is the value to be received on January 3, 2010. You must discount this value using the discount rate.
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This is the value of the same cash flow on January 3, 2004.
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Calculate the net present value of the set of two cash flows.
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| (16) |
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