Question
Given the following information about interest rates, which of the following solutions is correct? Note that the coupon bond pays coupon twice per year. Par
Given the following information about interest rates, which of the following solutions is correct? Note that the coupon bond pays coupon twice per year.
Par (Face Value) | Maturity, years | Coupon, % per annum | Price | Discount factor | Interest rate, r |
100 | 0.5 | 0 | 97 | 0.9700 | 6.0918% |
100 | 1 | 0 | 93.75 | 0.9375 | 6.4539% |
100 | 1.5 | 6 | 98 | d | r |
a. | Coupon = $3; d = {98 (3 * 0.9700 + 3 * 0.9375)} / 100 = 0.9228; r = -1/1.5 * ln(0.9228) = 5.3580%
| |
b. | Coupon = $3; d = {98 (3 * 0.9700 + 3 * 0.9375)} / 103 = 0.8959; r = -1/1.5 * ln(0.8959) = 7.3286%
| |
c. | Coupon = $6; d = {98 (6 * 0.9700 + 6 * 0.9375)} / 100 = 0.8655; r = -1/1.5 * ln(0.8655) = 9.6260% | |
d. | Coupon = $6; d = {98 (6 * 0.9700 + 6 * 0.9375)} / 106 = 0.8166; r = -1/1.5 * ln(0.8166) = 13.5106% |
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