Suppose, we observe the following market data on par bonds, i.e. these bonds trade at...
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Suppose, we observe the following market data on par bonds, i.e. these bonds trade at par. Assume par value of $1000.
Maturity T
Yield
0.5
0.06%
1.0
0.12%
1.5
0.195%
2.0
0.27%
2.5
0.335%
3.0
0.40%
1) Calculate the 2.5-year zero-coupon yield. Enter zero-coupon yields in decimal form (i.e. enter 0.025 for 2.5%). Round to eight digits after the decimal point (e.g. 0.12345678).
2) Calculate the3-year zero-coupon yield. Enter zero-coupon yields in decimal form (i.e. enter 0.025 for 2.5%). Round to eight digits after the decimal point (e.g. 0.12345678).
We can now use the zero-coupon yield from Exercise 1 to price a bond. Suppose, we have a 5% coupon bond (paid semi-annually) with maturity in three years. Assume par value of $1000.
1) Calculate the price of the coupon bond. (Hint: use the zero-coupon yields from Exercise 1 above). Round your answer to the nearest cent (e.g. 99.25).
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