Use the following information for part a and b. The 1-year, 2-year, 3-year and 4-year zero...

Use the following information for part a and b. The 1-year, 2-year, 3-year and 4-year zero rates are 2%, 3%, 4% and 5% per annum (APR) with quarterly compounding/payment.

A)What are the zero coupon bond prices with maturities of 1 year, 2 years, 3 years and 4 years? (Assume that you receive a face value of $100 for each of these bonds on their maturity dates).

B)What are the corresponding per annum zero rates with continuous compounding?

Please show work and do not just post picture of excel.

Solutions

Expert Solution

1yr zero coupon bond price - $ 98.04

2yr zero coupon bond price - $ 94.26

3yr zero coupon bond price - $ 88.90

4yr zero coupon bond price - $ 82.27

corresponding per annum zero rates

Per annum zero coupon rate for year 1 will be the same at 2%

per annum zero coupon rate for year 2 will be 4.01%

per annum zero coupon rate for year 3 will be 6.03%

per annum zero coupon rate for year 4 will be 8.06%

the calculation is shown in the image below:

jeff jeffy answered 2 days ago

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