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a) Based on the bond information provided in Table 1, calculate the missing zero rate Z1.5 and the 6-month forward rates R0.5,1 and R1.0,1.5.
Table 1
Time to Maturity (years)
Coupon Rate (p.a.)
Face Value
Price
Annualised Zero Rate
6-month Forward Rates
0.5
0%
$100.00
$98.02
4.00%
-
1.0
$95.89
4.20%
R0.5,1
1.5
$99.36
Z1.5
R1.0,1.5
Note that all zero and forward rates quoted are continuously compounded. Coupons are paid semi- annually.
b) From the pay fixed side, value the swap based on the following information:
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