mp3bu

ex-coupon, cum coupon is nothing new.

at every point you are provided the par value (e.g. 100$ when you start from the right). -- this is ex-coupon. You are given coupon=5.75$ e.g. 100+5.75=Cum-Coupon.

you discount cum-coupon prices at the interest rate in the previous node.

Method 1:
take average of price at previous node.
add coupon rate.

Method 2:
(or take price+coupon at each node, then average out).

both of these steps are exactly the same.

If you see the tree provided - everywhere Cum-Coupon=ex-coupon+8 (which is coupon).

CP