Question

If given 2 CV's 1 at CV0 (where coupon is in the equation) ir CV(3/12) (non-coupon payment date), which CV should be used to calculate CV0?

a) CV0
b) CV(3/12)
c) Both CV0 and CV(3/12)
d) Neither CV0 nor CV(3/12)

Answer 1

To calculate the current value at time 0 (CV0) for an investment or bond, you should use CV0 itself. CV0 represents the present value of the investment, while CV(3/12) has additional time value adjustments for a three-month period.

Step-by-step explanation:

When calculating the current value of a bond or an investment, we typically use the present value (PV) of future cash flows. The term 'CV0' appears to refer to the current value at time 0, or the present value of the investment, while 'CV(3/12)' would refer to the current value after three months, or one quarter, of a year on a non-coupon payment date.

In this context, if you were tasked to calculate the current value at time 0 (CV0), you should use 'CV0' itself. This is because CV0 directly represents the value of the investment at the present time without any additional time value of money adjustments that would be associated with 'CV(3/12)', which accounts for three months of passage in time. Therefore, the correct answer to your question is a) CV0.