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Currently, following prices of bonds are available: Bond prices Bond principal ($) Time to maturity (years) Annual coupon paid every six months 96 0 91

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Currently, following prices of bonds are available: Bond prices Bond principal ($) Time to maturity (years) Annual coupon paid every six months 96 0 91 100 100 100 100 0.50 1.00 1.50 2.00 97 8.00 12.00 101 a) Calculate zero rates for maturities of 6 months, 12 months, 18 months, and 24 months. Please use continuous compounding. (4 marks) b) What are the forward rates for the periods: 6 months to 12 months, 12 months to 18 months, 18 months to 24 months? (4 marks) c) Estimate the price of two-year bond providing a semiannual coupon of 10% per annum. Please use continuous compounding. (4 marks)

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