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# Zero Rates

There are four bonds; Bond A with a principal of \$100, maturity time is 6 months, annual coupon is \$0, bond price is \$98. Bond B with a principal of 100, maturity time of 12 months, annual coupon is \$0, bond price is \$95. Bond C with a principal of \$100, maturity time of 18 months, annual coupon of \$6.20, bond price is \$101. Bond D with a principal of \$100, maturity time of 24 months, annual coupon of \$8.00, bond price is \$104.

Calculate zero rates for maturities of 6 months, 12 months and 18 months and 24 months.

#### Solution Preview

There are four bonds; Bond A with a principal of \$100, maturity time is 6 months, annual coupon is \$0, bond price is \$98. Bond B with a principal of 100, maturity time of 12 months, annual coupon is \$0, bond price is \$95. Bond C with a principal of \$100, maturity time of 18 months, annual coupon of \$6.20, bond price is \$101. Bond D with a principal of \$100, maturity time of 24 months, annual coupon of \$8.00, bond price is \$104.

Calculate zero rates for maturities of 6 months, 12 months and 18 months and 24 months.

Bonds Maturity Annual Coupon Principal Price
A 6 months \$0.00 \$100.00 \$98.00
B 12 months \$0.00 \$100.00 \$95.00
C 18 months \$6.20 \$100.00 \$101.00
D 24 months \$8.00 \$100.00 \$104.00

Note: We assume semi annual coupon payments on coupon bonds and semi annual compounding

We first calculate the zero rates for 6 months and ...

#### Solution Summary

Calculate rates for maturities of 6, 12, 18 and 24 months

\$2.19