The price of a six-month Treasury bill is $97. Two 1.5-year bonds that will pay coupons...

 

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The price of a six-month Treasury bill is $97. Two 1.5-year bonds that will pay coupons of $3 and $8 every six months currently sell for $98 and $112, respectively. A 2-year coupon paying bond that pays a coupon of $4 every six months sells for $99.5. The face value of each bond is $100. Calculate the yield to maturity for each bond assuming semi-annual compounding. Subsequently, express the obtained yields in terms of continuously compounded rates. The price of a six-month Treasury bill is $97. Two 1.5-year bonds that will pay coupons of $3 and $8 every six months currently sell for $98 and $112, respectively. A 2-year coupon paying bond that pays a coupon of $4 every six months sells for $99.5. The face value of each bond is $100. Calculate the yield to maturity for each bond assuming semi-annual compounding. Subsequently, express the obtained yields in terms of continuously compounded rates.

Answer rating: 100% (QA)

To calculate the yield to maturity for each bond we can use the following formula PV C1 y2t C1 y2t05 C1 y2n05 F C1 y2n where PV is the present value o... View the full answer