1
$\begingroup$

Given the 1 year bond with a price 98 and C as 8% on face value 100. I want to find the implied single compounding interest rate. I can solve for r via the bond price formula or I can just set up the equation 98(1+r)=106 and solve for r and it will be the same. However I do not 100% understand why this is the case. Is it because we are assuming no arbitrage and the redemption yield is the current prevailing market rate and thus, for example, a bank account must have this interest rate? Grateful for any answers

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.