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The following table gives the price of bonds; Bond Principle TTM Annual Coupon Bond Price 100 6 months 0% 96 100 12 months 0% 90
The following table gives the price of bonds;
Bond Principle | TTM | Annual Coupon | Bond Price |
100 | 6 months | 0% | 96 |
100 | 12 months | 0% | 90 |
100 | 18 months | 8% | 95 |
Half the stated coupon is assumed to be paid every six months. Use semi-annual compounding as interest rate measurement.
A) Calculate (annualized) zero rates for maturities of 6 months, 12 months and 18 months.
B) What is the fair price of 18-months zero-coupon bond given current term structure of zero rates? The par value of bond is assumed to be $100.
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