Assume 6-month zero rate is 5% per annum with continuous compounding. Use the following table to answer the questions below. Face value Time to maturity
Assume 6-month zero rate is 5% per annum with continuous compounding. Use the following table to answer the questions below.
Face value | Time to maturity | Coupon / year | bond price |
100 | 1 year | 0 | 94 |
100 | 1.5 year | 20 | 115 |
*Half of the stated coupon is paid every six months
**All rates are continuously compounded
Estimate the price of a 1.5year bond providing a semi-annual coupon of 7% per annum.
*Do not round interim calculations for accurate answer.
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Authors: Leslie G. Eldenburg, Susan K. Wolcott, Liang Hsuan Chen, Gail Cook
3rd Canadian Edition
978-1-119-1856, 978-1119185697
