(b)

A RM100 par value bond with coupons 6% payable semiannually is purchased at RM110 to yield a nominal rate of 4% convertible semiannually. A buyer purchases a similar bond with 3% semiannual coupons at the price, P. Calculate P with the same yield. (8 marks)

Two RM100 par value bonds pay annual coupons of 6% and redeemable at par have terms to maturity of exactly one year and two years. The yield to maturity for the 1-year bond is 5.2% per annum effective and the yield to maturity for the 2-year bond is 6.1% per annum effective. Calculate the following as a percentage to three decimal places.

(i) Calculate the annual effective spot rates for each of the two years.

(ii) Calculate the annual effective one-year forward rates for each of the two years.