Hey guys, feeling a bit dumb on this one! I’ve checked the errata and there’s nothing listed for this exhibit so must be missing something obvious.
Trying to calculate the uppermost node’s value for Date 3. The two relevant nodes in the tree at Date 4 have values of 93.7706 (upper) and 96.7697 (lower), with the coupon payment being 3.5. The book gives a value for the relevant Date 3 node of 93.3858 using a discount rate of 8.0804%, but for the life of me I don’t how they’re getting to this number. I calculate it as:
((0.5 x 93.7706) + (0.5 x 96.7697) + 3.5) / 1.080804 = 91.3858
Any idea what I might be missing here? Thanks in advance!