Question
The following table gives Treasury zero rates and cash flows on a Treasury bond: Maturity (years Zero rate Coupon payment Principal 0.5 2.0% $20 1.0
The following table gives Treasury zero rates and cash flows on a Treasury bond:
Maturity (years Zero rate Coupon payment Principal
0.5 2.0% $20
1.0 2.3% $20
1.5 2.7% $20
2.0 3.2% $20 $1000
Zero rates are continuously compounded
(a) What is the bond's theoretical price?
(b) What is the bond's yield?
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Finance Applications and Theory
Authors: Marcia Cornett
4th edition
1259691411, 978-1259691416
