Exercise 2. The 6-month, 12-month, 18-month, and 24-month zero rates are 4%, 4.5%, 4.75% and...
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Exercise 2. The 6-month, 12-month, 18-month, and 24-month zero rates are 4%, 4.5%, 4.75% and 5%, with continuous compounding, (a) What are the rates with semi-annual compounding? (c) Forward rates are rates of interest implied by current zero rates for periods of time in the future. Calculate the forward rate for year 2. i.e. the rate for the period of time between the end of 12-month and the end of 24-month. (d) Consider a 2-year bond providing semiannual coupon of 10% per annum. Estimate the price of this bond using the given zero rates. (e) Estimate the continuous compounded) yield of this bond using the result in (c)
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