Interest rates are expressed as annualized rates for the, Ask an Expert

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Interest rates are expressed as annualized rates for the term specified. Report your interest rate answers as fractional numbers like 0.11 for 11% per year.

Problem .

The current price of a 6-month zero coupon bond with a face value of $100 is B1. If a 9-month strip with a face value of $100 is currently trading for B2, find the forward interest rate for the 6 to 9 month period. Solve by both continuous compounding and quarterly compounding. Write your answers for the following:

1. Six-month spot interest rate for quarterly compounding.

2. Nine-month spot interest rate for quarterly compounding.

3. Forward rate (6 to 9 months) for quarterly compounding.

4. Six-month spot interest rate for continuous compounding.

5. Nine-month spot interest rate for continuous compounding.

6. Forward rate (6 to 9 months) for continuous compounding.

7. What is the guaranteed fair price of a 3-month T-Bill to be delivered at 6 months from now, assuming quarterly compounding?

8. What is the guaranteed fair price of a 3-month T-Bill to be delivered at 6 months from now, assume continuous compounding?

B1=93.6

B2=92.6

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92767168

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