3. The cash prices of 6-month and 1-year Treasury bills are 94.0 and 89.0. A 1.5-year bondthat will pay coupons of $4 every 6 months currently sells for $94.84. A 2-year bond thatwill pay coupons of $5 every 6 months currently sells for $97.12. Calculate the 6-month,1-year, 1.5-year, and 2-year zero rates.

The price of the bond is the PV of all future cash flows discounted at the spot rate.

Answered: will pay coupons of $5 every 6 months…

will pay coupons of $5 every 6 months currently sells for $97.12. Calculate the 6-month, 1-year, 1.5-year, and 2-year zero rates.

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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I calculated the PV value of a $100 payment stream at 1% for 6 years payable at the beginning of the year to be $585.34. Likewise, if I have a balance today of $584.34 in 6 years this balance would be paid off if I deduct $100 at the beginning of each year at 1% interest. (See image capture 1) However I run into issues whe I use two interest rates. Time Payment Rate PV 0 $100 1% 100/(1.01)^0=100 1 $100 1% 100/(1.01)^1=99.01 2 $100 1% 100/(1.01)^2=98.03 3 $100 2% 100/((1.01)^2*(1.02))=96.11 4 $100 2% 100/((1.01)^2*(1.02)^2)=94.22 5 $100 2% 100/((1.01)^2*(1.02)^3)=92.38 The Total PV for this stream is $579.75. So why doesn't the following equation yield zero: Time Payment Rate Balance…
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None

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