Question 1

You have collected the following information from the Wall Street Journal

0. 5yr I-note trading at par with coupon rate 4. 45%

1yr 1-note trading at par with ytm = 6. 12% p. a.

1.5yr T-note with coupon rate 5%, trading with ytm = 7.1% p. a.

a) Compute the following zero yields from the above information

Please report per annum semiannual compounding yields.

Enter your answers below

0.5 ------------

1 ------------

1.5 -------------

b) From the above calculation, what is the price of a 1.5-yr 1-note, face value $100 paying a coupon rate of 10% p.a.

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c) What is the forward interest rate for a 1-yr loan starting 6 months from now ? (This is the 6x18 rate.) Please report a per annum semi-annual compounding rate.

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d) Microsoft is currently selling for $29/share. What is its 1-yr forward price?

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