Question

***Can you please explain step by step on how to do this question*** and please show formulas used so i can understand how to do it on my own. thank you.

*The cash prices of six-month and one-year Treasury bills are
94.0 and 89.0. A 1.5-year bond that will pay coupons of $4 every
six months currently sells for $94.84. A two-year bond that will
pay coupons of $5 every six months currently sells for $97.12.
Calculate the six-month, one-year, 1.5-year, and two-year zero
rates.*

Answer #1

The six months treasury bill provides a return of 6/94 = 6.383% is six months and for annual 6.383*2

= 12.766 % per annum with semiannual compounding or 2in(1.06383) = 12.38% per annum with continous compounding

The 12 month treasury bill is 11/89 = 12.36% or in(1.1236) = 11.65% with continous compounding

for 1.5 year bond we must have

4e^{-0.1238*0.5}+
4e^{-0.1165*1.0}+104e^{-1.5R}=94.84

R equals to 1.5year zero rate

3.76+3.56+104e^{-1.5R}=94.84

e^{-1.5R}= 0.8415

R= 0.115 or 11.5%

for two year bond

5e^{-0.1238*0.5}+ 5e^{-0.1165*1.0}+
5e^{-0.115*1.5}+105e^{-2R}=97.12

R is the 2-year zero rate

e^{-2R}= 0.7977

R = 0.113 or 11.3%

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Please give me the process, thank you!

The cash prices of six-month and one-year Treasury bills are
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Assume the principal of the bond is $100. 4 Calculate the
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