(All bonds have a face value of $100. Coupon rates are expressed with semi-annual compounding)
Required:
(a) Calculate the continuously compounded zero rates for the bonds above. Record your answers to 3 decimal places in percentage i.e. x.xxx% or 0.xxxxx.
(b) What are the forward rates for the periods: 6 months to 12 months, 12 months to 18 months, 18 months to 24 months?
(c) Use the zero rates you calculated from part (a) to estimate the price of a two-year bond providing a semi-annual coupon of 7% per annum and a face value of $100.
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