Question: Please help me to answer this question QUESTION 9 Consider three zero-coupon bonds (ZCBs) each with face value $20,000 and with maturities 4, 5 and

Please help me to answer this question

Please help me to answer this question QUESTION 9 Consider three zero-coupon

QUESTION 9 Consider three zero-coupon bonds (ZCBs) each with face value $20,000 and with maturities 4, 5 and 6 years. (a) Suppose that the ZCBs are priced using the Vasicek model with the same parameter values. At time t = 0, the theoretical price of the 4-year ZCB is $17,000. At time t = 1 year, the theoretical price of the 5-year ZCB is $18,000. Calculate the theoretical price of the 6-year bond at time t = 2 years, assuming that the short rates are r(0) = 4% p.a., r(1) = 3.5% p.a., r(2) = 3% p.a. [5 marks] (b) Suppose that these ZCBs are priced using the Cox-Ingersoll-Ross model. State the answer to part (a) above and give a reason for your answer. [2 marks] [Total: 7 marks]

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