I'm studying Financial Engineering, a subject I'm completely new to.
Principles of Financial Engineering 3rd Edition and trying to solve the exercises of the chapter on Cash Flow Engineering.
The first question states:
You have a 4-year coupon bond that pays semiannual interest. The coupon rate is 8% and the par value is 100. a. Can you construct a synthetic equivalent of this bond? Be explicit and show your cash flows.
Unfortunately, I don't know how to proceed with this. I'm not able to understand how the cash flows would be split.
Would it be 8 separate payments?
And if yes, what would the payment amount be at each
ti, i=1,2,...8 and why?