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BOND MATH: The Theory Behind the Formulas by Donald J. Smith

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Bond Pricing between Coupon Dates

Finally, it's time to get realistic about bond prices and yields. So far in this chapter I've conveniently assumed exactly four years to maturity on the bonds in the examples and that the next coupon payment is due one year into the future. That simplifies the calculations to draw your attention to the factors impacting yields and (pretax) rates of return—coupon reinvestment rates and the probability of default. You've probably heard the old saying: “Even a broken clock gives the correct time twice a day.” The analogy is that knowing how to do bond math on coupon dates for standard semiannual payment corporate and Treasury bonds makes you a valuable person—twice a year.

Extending basic bond math to between coupon ...

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