Construct

Part II In this part of the test, show all the steps of the calculation clearly. Each question is worth 25 points. 1. Given the following prices for an on-the-run bonds: Bond Price 6-month Zero Coupon 98-18+ 1-year Zero Coupon 97-043 1.5-year with coupon rate of 3% 95-255 | 2-year with coupon rate of 4% 94-031 a. Construct the spot rate (bond-equivalent yield) for 6-month, 1-year, 1.5-year and 2-year using the bootstrapping methodology. (20 marks) b. Find the no-arbitrage price of the off-the-run 2-year bond with coupon rate of 2%, quoted with the same format as given in the question. Assume semiannual compounding and coupons are paid semiannually. (5 marks) Part II In this part of the test, show all the steps of the calculation clearly. Each question is worth 25 points. 1. Given the following prices for an on-the-run bonds: Bond Price 6-month Zero Coupon 98-18+ 1-year Zero Coupon 97-043 1.5-year with coupon rate of 3% 95-255 | 2-year with coupon rate of 4% 94-031 a. Construct the spot rate (bond-equivalent yield) for 6-month, 1-year, 1.5-year and 2-year using the bootstrapping methodology. (20 marks) b. Find the no-arbitrage price of the off-the-run 2-year bond with coupon rate of 2%, quoted with the same format as given in the question. Assume semiannual compounding and coupons are paid semiannually