bonds

1. Getting risk-neutral probabilities using existing bond prices. Assume that the six-month spot rate is 4%. The six-month interest rate six months from now is either 4.5% or 3.5%. The current one-year zero-coupon bond for $100 face amount is priced at $92.5. 1) find the value of the one-year zero-coupon bond six months from now if six-month interest rate six months from now is 4.5% by discounting future cash flow at an appropriate interest rate; 2) find the value of the one-year zero-coupon bond six months from now if six-month interest rate six months from now is 3.5% by discounting future cash flow at an appropriate interest rate; 3) find the risk-neutral probability