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Use continuous compounding only. Q1: Find the price of a 3-year $100 bond that pays 4% coupon. Use the zero rates provided below. Q2: Find
Use continuous compounding only.
Q1: Find the price of a 3-year $100 bond that pays 4% coupon. Use the zero rates provided below.
Q2: Find the bond yield and par yield of the above bond.
Q3: You invest $400 in a 3 year zero coupon bond that pays 4.5% annual yield. Another zero coupon bond issued by the same issuer has 5 years maturity and pays 4.8% yield. How much will you earn from each bond at its maturities? What is the annual yield you are receiving between 3 years and 5 years?
Maturity | Zero Rate | |
6 | months | 2% |
1 | year | 2.3% |
18 | months | 2.55% |
2 | years | 2.75% |
30 | months | 2.90% |
3 | years | 3% |
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