There is the following forward curve:
Period Forward rate
0y1y 1%
1y1y 1%
2y1y 4%
3y1y 3%
4y1y 3%
Find the price of a bond that matures in 5 years with 100 nominal and interest payments 3% per year:
a) 101.58
b) 105.01
c) 105.36
I compute and got 102.99
3/(1.01) + 3/(1.01)^2+ 3 /(1.01^2)(1.04) … +103/ (1.01^2)(1.04)(1.03)^2 =102 .99
but it is not the answer, is ok what I did??
Greetings friend! Did the problem specify a different par value for the bond? I see “nominal” above but does this equal the same thing as par in your problem?
If the par value is 100 and the coupon payments are 3 per year, and they are annual coupon payments not semi-annual etc., then unless there is additional information in the problem it looks like your formula is correct and there may be an error with your problem’s model answer. But if they have a par value included in the problem and also give you a nominal or market value etc., always use the par value because this could be a way to trick folks with wording.
Cheers - good luck - you got this 