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Unformatted text preview: compounded continuously, calculate the 6 month forward price assuming a risk free force of interest of 8%. 4. You are given (the face amount in each case is $100): 6month Tbills sell for $95 1year Tbills sell for $90 1.5year bonds with 8% coupons paid semiannually sell for $95.80 2year bonds with 10% coupons paid semiannually sell for $97.55 Calculate the 6month, 1year, 1.5year and 2year annual e/ective spot rates. 5. Consider a 2year $1000 bond with 7% coupons paid semiannually. (a) Calculate the volatility and convexity of the bond at an interest rate of 10% compounded semiannually. (b) Using part a) calculate the approximate relative change in the price of the bond if interest rates increased from10% to 11% compounded semiannually. (c) Compare your answer in b) to the actual relative price change. 1...
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This note was uploaded on 02/07/2010 for the course ACTSC 231 taught by Professor Chisholm during the Spring '09 term at Waterloo.
 Spring '09
 Chisholm
 Dividends

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