A six-month zero-coupon bond is trading at 97 [P0] while a one-year 8 [c]% coupon bond is trading at 100 [P1]. Assume coupons are paid semiannually and that both bonds have a face value of $100. What is the semiannually-compounded forward rate f(0.5, 1) IN PERCENT p.a. implied by these prices?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
A six-month zero-coupon bond is trading at 97 [P0] while a one-year 8 [c]% coupon bond is trading at 100 [P1]. Assume coupons are paid semiannually and that both bonds have a face value of $100.
What is the semiannually-compounded forward rate f(0.5, 1) IN PERCENT p.a. implied by these prices?
(Solution should be: 9.904)
Step by step
Solved in 2 steps with 2 images
