Problem. Consider a semi-annual coupon bond. Its face value is $1,000, it bears a 6 percent...
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Problem. Consider a semi-annual coupon bond. Its face value is $1,000, it bears a 6 percent coupon rate per year and will mature in 2 years. Maturity 0.5 1.0 1.5 2.0 Spot Rates 0.9 1.3 1.8 2.3 Forward Rates f1= f(0,0.5) f2 = f(0.5,1) f3 = f(1,1.5) f4 = f(1.5, 2) 1) Compute the bond price using the sport rates. The bond equation is: 4 Ct P = Σt Σ = 1 (1 + Z₂) ² where Zt represent a zero rate at time t and Ct is a cash flow at time t. t P= 2) Calculate the respective implied forward rates from the corresponding spot rates. 3) Calculate the bond price using the implied forward rates using the following equation. C₂ C3 C4 (1+f₁)(1+f₂) (1+f₁)(1+f₂)(1+f3) (1+f₁)(1 + f₂)(1+f3)(1+fa) C₁ * * * + (1+f₁) 4) Compare all the bond prices and provide findings. Problem. Consider a semi-annual coupon bond. Its face value is $1,000, it bears a 6 percent coupon rate per year and will mature in 2 years. Maturity 0.5 1.0 1.5 2.0 Spot Rates 0.9 1.3 1.8 2.3 Forward Rates f1= f(0,0.5) f2 = f(0.5,1) f3 = f(1,1.5) f4 = f(1.5, 2) 1) Compute the bond price using the sport rates. The bond equation is: 4 Ct P = Σt Σ = 1 (1 + Z₂) ² where Zt represent a zero rate at time t and Ct is a cash flow at time t. t P= 2) Calculate the respective implied forward rates from the corresponding spot rates. 3) Calculate the bond price using the implied forward rates using the following equation. C₂ C3 C4 (1+f₁)(1+f₂) (1+f₁)(1+f₂)(1+f3) (1+f₁)(1 + f₂)(1+f3)(1+fa) C₁ * * * + (1+f₁) 4) Compare all the bond prices and provide findings.
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Project Management A Managerial Approach
ISBN: 978-0470226216
7th Edition
Authors: Jack R. Meredith, Samuel J. Mantel,
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