In example 4, AI↓T is calculated as 2 × 1.5/12, I’ve doubt regarding why 1.5? The time we entered 0.5month was passed & the AI(AI↓0) for the same is deducted from S & it’s mentioned that the bond expires in next 1month so shouldn’t the AI↓T be calculated for 1month instead of 1.5?
Please clarify. Thank you.
It doesn’t matter when we enter the contract. The matter of fact is that when we enter into the contract 0.5 mth of int. accrue and the contract is expire after 1 mth so the total period of time is 1.5 mth of accrue int. which comes to .25
Hope this helps
But Harsh we deducted the 0.5m wala AI from So* so why again?
No we never deduct the 0.5 mth int. We add it to bond price to get clean price and the compounds it.
Ha I made a mistake while typing, thank you though.