Let us consider the bond prices of Table 3.4, where we assume that all face values are 1000 and coupons are semiannual, and find the implied continuously compounded rates. The price of the first zero maturing in six months yields the first discount factor immediately:

The second bond has two cash flows, 30 and 1030, in six months and one year, respectively. Hence

By a similar token,

The last step yields 

Data From Table 3.4

Transcribed Image Text:

984.62 Z (0,0.5)= = 0.98462 1000 r(0,0.5)= log Z(0,0.5) 0.5 0.031.