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Consider the following three bonds: Bond Coupon Rate Maturity (years) Price A 0% 1.0 $947.5572 B 7% 1.0 $1,014.8980 C 5% 1.5 $981.4915 Assume that coupons are paid every 6 months and...

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Finance

Consider the following three bonds:

BondCoupon RateMaturity (years)Price
A0%1.0$947.5572
B7%1.0$1,014.8980
C5%1.5$981.4915


Assume that coupons are paid every 6 months and the face values ofall the bonds are $1,000.

(a) Determine the spot rate curve. (That is, determines0.5, s1, ands1.5 in yearly terms.) (Keep 4 decimal places,e.g. 0.1234)

    s0.5:         s1:            s1.5:

(b) Suppose that the 0.5- and 1.5-year zero-coupon bonds areavailable. Determine their respective prices. (Keep 2 decimalplaces, e.g. xxx.12)

    PZ0.5:              PZ1.5:

(c) Determine the forward rate f 0.5,1 (inyearly term) on a 6-month Treasury bill 6 months from now. (Keep 4decimal places, e.g. 0.1234)

     

(d) Determine the forward rate f0.5,1.5 (inyearly term) on a 12-month Treasury bill 6 months from now. (Keep 4decimal places, e.g. 0.1234)

      

(e) Price the 1.5-year coupon bond 6 months from now. (Keep 2decimal places, e.g. xxx.12)?

  

Answer & Explanation Solved by verified expert
4.5 Ratings (713 Votes)
a S1 is the 1year spot rate This is equal to the yield of the 1year zero coupon bond The price of a zero coupon bond is the present value of its face value discounted at the spot rate Therefore 9475572 1000 1 S11 S1 1000 9475572 1 00554 The price of a coupon bond is the present value of its cash flows A    See Answer
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