Part c

The price of a six-month zero coupon bond is 98.03. The price of a 1.5-year bond that pays a coupon of 2 every six months is 95.15. The price of an additional 1.5-year bond that pays a coupon of 5 every six months is 103.51. The price of a 2-year bond that pays coupon of 2 every six months is 84.63. The face value of each bond is 100. Calculate the yield to maturity for each bond assuming semi-annual compounding. Subsequently, express the obtained yields in terms of continuously compounded rates. In what circumstances can you interpret the yield to maturity as a (certain) rate of return on a bond? b) Using the relevant information from part (a), calculate the continuously and semi-annually compounded zero rates for the 6-month, 1-year and 1.5-year maturities and the respective forward rates for the periods within. MUIS) c) Using the relevant information from part (b), calculate the value of a forward rate agreement (FRA) that enables the buyer to earn a semi-annually compounded interest rate of 9% for a 6- month period starting in 12-months on a principal of 50 million. Design a strategy to take advantage of possible arbitrage opportunities and calculate the final profit