The term structure of interest rates is as follows:

t (years) r (continuous)

0.25 0.015

0.5 0.02

1 0.025

2 0.023

(a) What is the discount factor at the maturity t = 0.5 years?

(b) What is the zero rate at maturity t = 0.25 years expressed with semi-annual compounding?

(c) What is the forward rate from t = 1 to T = 2 years expresses as a rate of simple interest?

(d) Using a linear interpolation in the continuously compounded zero rate, determine the price of the bond (expressed per 100 notional) that pays a coupon rate of 5.5% with semi-annual coupons and maturity of 2 years.

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