Question 6 (13 pts] The following table gives the prices of bonds: Bond principal Time to maturity Annual coupon ($) (ye
Posted: Wed May 11, 2022 3:51 pm
- Question 6 13 Pts The Following Table Gives The Prices Of Bonds Bond Principal Time To Maturity Annual Coupon Ye 1 (118.02 KiB) Viewed 25 times
Question 6 (13 pts] The following table gives the prices of bonds: Bond principal Time to maturity Annual coupon ($) (years) ($) 100 0.25 0 100 0.5 0 100 1.0 0 100 1.5 7.5 100 2.0 8.6 Bond price ($) 98 96 93 105 110 Half the stated coupon is assumed to be paid every six months. (i) Calculate zero rates for maturities of 3 months, 6 months, 12 months, 18 months, and 24 months. (ii) What is the 2-year par yield for bond that provide semiannual coupon payments? Solution 100 ri = 4log 0.0808 98 100 r2 = 2 log() = 0.0816 96 100 1'3 = log -) = 0.0726 93 Since the first annual coupon has a time to maturity of 0.25 years, it should not be included in a calculation for the following zero rates because all these rates pay semi-annually. 105 = 3.25e - 2x0.5 +3.25e + 14 = 0.0386. a -T3X + 103.25e - 4x1.5 110 = 4.3e - 2x0.5 + 4.3e-13x1 +4.3e-r4x1.5 + 104.3e-r's x2 >15 = 0.0321. (i) By definition of a par yield 100= e="2x0.5 the y + -13x1 + -r4x1.5 + (100+ )e="5x2 + y = 3.3. 2