Question 1. (This question has three parts: I, II and III) The following table gives...
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Question 1. (This question has three parts: I, II and III) The following table gives the price of bonds: Bond Principal ($) Time To Maturity (Months) Annual Coupon Rate (%) Bond Price ($) 100 6 0.0 96 100 12 0.0 90 100 18 8.0 95 Half the stated coupon is assumed to be paid every six months. Use semi-annual compounding as interest rate measurement. Part I. Calculate (annualized) zero rates for maturities of 6 months, 12 months and 18 months.
Part II. What is the fair price of 18-months zero-coupon bond given current term structure of zero rates? The par value of bond is assumed to be $100.
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