Question: 14. Suppose that the zero rates, measured with continuous compounding, are as in the table below Maturity (years) 0.5 1.0 1.5 2.0 Zero rate (%

14. Suppose that the zero rates, measured with continuous compounding, are

14. Suppose that the zero rates, measured with continuous compounding, are as in the table below Maturity (years) 0.5 1.0 1.5 2.0 Zero rate (% continuously compounded) 4.0 4.8 6.0 6.8 A 2-year bond with a principal of $500 provides coupons at the rate of 7% per annum semiannually, Calculate the theoretical price of this bond (15p.)

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