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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
3.9 Ratings (754 Votes)
a For Bond A Coupon Rate 0 Price 9475572 Par Value 1000 Tenure 1 year Assumption Coupon payment frequency and compounding frequency are both semiannual Let the 1 year spot rate s1 be 2y Therefore 9475572 1000 1y2 y 1000947557212 1 00273 or 273 s1 2 x y    See Answer
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