The term structure of interest rates is as follows:
t (years) r (continuous)
(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.
Dear Student, Please find... View the full answer