We know that the 6 month zero bond price is $94.9; the 1 year coupon bond price is $90.0 with semi-annual coupon rate 4%; the 1.5 year coupon bond price is $96.0 with semi-annual coupon rate 8%. Note that the face value of the bonds are $100. What is the annual 1.5 year zero rate? Please work on a continuous compounding base. O 8.16% O 14.65% O 7.87% O 10.57% O 8.60% O 7.84% O 14.39% O 10.47% O 10.31%

We know that the 6 month zero bond price is $94.9; the 1 year coupon bond price is $90.0 with semi-annual coupon rate 4%; the 1.5 year coupon bond price is $96.0 with semi-annual coupon rate 8%. Note that the face value of the bonds are $100. What is the annual 1.5 year zero rate? Please work on a continuous compounding base. O 8.16% O 14.65% O 7.87% O 10.57% O 8.60% O 7.84% O 14.39% O 10.47% O 10.31%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $983.78 865.89 797.92 732.00 660.24 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4?

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