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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.

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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