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...

80.2K

Verified Solution

Question

Finance

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 the face values ofall the bonds are $1,000.
(a) Determine the spot rate curve. (That is, determines_0.5, s₁, ands_1.5 in yearly terms.) (Keep 4 decimal places,e.g. 0.1234)
     s_0.5:        s₁:         s_1.5 :
(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)
     P_Z0.5:            P_Z1.5:
(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 f_0.5,1.5 (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 (584 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

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

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