Question

Assume that you are a financial analyst in the fixed income department of an investment bank. You are given the following information: the 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are, respectively, 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum, with continuous compounding. Your task is to answer the following questions.

1. Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4% per annum semiannually.
2. Calculate the yield rate of this bond.

Answer 1

1.
=100*4%/2*exp(-4%*6/12)+100*4%/2*exp(-4.2%*12/12)+100*4%/2*exp(-4.4%*18/12)+100*4%/2*exp(-4.6%*24/12)+100*4%/2*exp(-4.8%*30/12)+100*exp(-4%*30/12)
=99.83219161

2.
=RATE(30/12*2,4%*100/2,-99.83219161,100)*2
=4.07128%