Question

***Can you please explain step by step on how to do this question*** and please show...

***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.

Homework Answers

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%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The cash prices of six-month and one-year Treasury bills are 98.0 and 95.0, respectively. A 1.5-year...
The cash prices of six-month and one-year Treasury bills are 98.0 and 95.0, respectively. A 1.5-year bond that will pay coupons of $3 every six months currently sells for $96. A two-year bond that will pay coupons of $7 every six months currently sells for $101. Assume the principal of the bond is $100. Calculate the (a) six-month, (b) one-year, (c) 1.5-year, and (d) two-year zero rates. Please give me the process, thank you!
The cash prices of six-month and one-year Treasury bills are 95.0 and 90.0, respectively. A 1.5-year...
The cash prices of six-month and one-year Treasury bills are 95.0 and 90.0, respectively. A 1.5-year bond that will pay coupons of $5 every six months currently sells for $94. A two-year bond that will pay coupons of $6 every six months currently sells for $97. Assume the principal of the bond is $100. 4 Calculate the six-month, one-year, 1.5-year, and two-year zero rates.
Please solve this for me step by step (no excel, no financial cal. show algebra)? Thank...
Please solve this for me step by step (no excel, no financial cal. show algebra)? Thank you. You put 100,000 into a money market instrument September 4 2018 for six calendar months at 3%. When it matures, you roll it over for the next six months at 4%. What are the proceeds? Be careful with the day counts. What would need to be the (“equivalent”) rate on a one-year (i.e., non-money market) semi-annual compounding instrument in order to produce the...
please solve step by step. thank you A bipartite graph is a graph whose vertices can...
please solve step by step. thank you A bipartite graph is a graph whose vertices can be divided into two disjoint and independent sets U and V such that every edge connects a vertex in U to one in V. Show that a simple graph is bipartite if and only if it is 2-colorable.
Question: How do you differentiate sinx/x ? Can you please provide step by step workings ,thanks
Question: How do you differentiate sinx/x ? Can you please provide step by step workings ,thanks
Please explain carefully step by step. So you can retire early, you have decided to start...
Please explain carefully step by step. So you can retire early, you have decided to start saving $500 a month starting one month from now. You plan to retire as soon as you can accumulate $1 million. If you can earn 5 percent (per year) on your savings, how many years will it be before you can retire?
Can you please explain every question step by step. I am trying to understand it as...
Can you please explain every question step by step. I am trying to understand it as best as I can. Dr. Smith believes that exposing babies and children to classical music with raise their intelligence quotient (IQ). To test this idea, he administers IQ tests to 10 children of his friends who listen to classical music on a regular basis. He then compares the results from these 10 kids to the national average, which is 100. The results are below:...
Please answer each step to get to the final answer without using excel. Thank you! Suppose...
Please answer each step to get to the final answer without using excel. Thank you! Suppose that an investor with a 10-year investment horizon is considering purchasing a 20-year 8% coupon bond selling for $900. The par value of the bond is $1000. The original YTM on the bond is 10%, but the investor expects that he can reinvest the coupon payments at an annual interest rate of 7% and that at the end of the investment horizon this 10-year...
Hi, could you please explain step-by-step what to do? Thank you. Two glass bulbs, each with...
Hi, could you please explain step-by-step what to do? Thank you. Two glass bulbs, each with the same volume, are connected together (and open to each other) and filled with Ar(g). When the two bulbs are immersed in a water bath at 85°C, the gas pressure is 0.78 atm. One of the bulbs is then removed (but not disconnected from the other) from the water bath at 85°C and immersed in a water bath at 22°C. Now, what is the...
PLEASE TRY TO ANSWER ALL OF THE NUMBERED QUESTIONS 1. How much would an investor earn...
PLEASE TRY TO ANSWER ALL OF THE NUMBERED QUESTIONS 1. How much would an investor earn on a stock purchased one year ago for $70 if it paid an annual cash dividend of $4.35 and had just been sold for $78.50? Would the investor have experienced a capital gain? Explain. 2. An investor buys a bond for $1,000. The bond pays $40 in interest every six months. After two years, the investor sells the bond for $980. Describe the types...