4.5 Bond pricing To calculate the cash price of a bond we discount each cash flow at the appropriate zero rate In our example (page 89), the theoretical price of a two-year bond with a principal of $100 providing a 6% coupon semiannually is Be 0.05×0.5 +3e005800+3e-04.5 +103e 0.068×2.0 $98.39 Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University4.5 Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University Bond Pricing • To calculate the cash price of a bond we discount each cash flow at the appropriate zero rate • In our example (page 89), the theoretical price of a two-year bond with a principal of $100 providing a 6% coupon semiannually is 103 $98.39 3 3 3 0.068 2.0 0.05 0.5 0.058 1.0 0.064 1.5 + = + + −  −  −  −  e e e e