(b) (i) In a bond amortization schedule, what does the "book value" mean? Describe in words. [2] (ii) Consider a n-period coupon bond where the redemption amount, C may not be the same as the face amount, F. Using j and g to represent the yield rate per period and modified coupon rate per period respectively, show that, for k=0,1,2,,n, the book value at time k,Bk is Bk=C+C(gj)an1j, and the amortized amount at time k is PRk=C(gj)vjnk+1. [6] (iii) Let K=Cvjn. The Makeham formula to compute the price of a bond is given by P=K+jg(CK) A verbal interpretation for K would be that K is the present value of the redemption value C. Provide a verbal interpretation for (CK). (b) (i) In a bond amortization schedule, what does the "book value" mean? Describe in words. [2] (ii) Consider a n-period coupon bond where the redemption amount, C may not be the same as the face amount, F. Using j and g to represent the yield rate per period and modified coupon rate per period respectively, show that, for k=0,1,2,,n, the book value at time k,Bk is Bk=C+C(gj)an1j, and the amortized amount at time k is PRk=C(gj)vjnk+1. [6] (iii) Let K=Cvjn. The Makeham formula to compute the price of a bond is given by P=K+jg(CK) A verbal interpretation for K would be that K is the present value of the redemption value C. Provide a verbal interpretation for (CK)