Question
Betty and Bob must construct the ZCB yield curve for Freedonia. Freedonia has bonds of 6 months, 12 months, 18 months, and 24 months terms.
Betty and Bob must construct the ZCB yield curve for Freedonia. Freedonia has bonds of 6 months, 12 months, 18 months, and 24 months terms.
A 6-month ZCB with maturity value of $100 is priced at $94.3396.
A 1-year coupon bond with maturity value of $100 and a coupon rate of 8% per annum, payable semiannually is priced at $94.6112.
An 18-month coupon bond with maturity value of $100 and a coupon rate of 19% per annum payable semiannually is priced at $105.44031.
A 2-year coupon bond with maturity value of $100 and a coupon rate of 10% per annum payable semiannually is priced at $90.2871.
a By viewing the coupon bond as the sum of the ZCBs find the per annum yield compounded semiannually for the 6 months, 1 year, 18 months and 2 years ZCB.
b A special 2-year bond has maturity value of $100 and coupons of $4, $9, $5, and $7 in that order. Use the ZCB yield curve data to compute the price of the bond.
a. 6 month_______, 12 month______18month________24month________
b. The price of the special bond is___________
Step by Step Solution
There are 3 Steps involved in it
Step: 1
SOLUTION a Finding per annum ZCB yields compounded se...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started