Compute the bond price using the sport rates

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Consider a semi-annual coupon bond. Its face value is $1,000, it bears a 6 percent coupon rate per year and will mature in 2 years.

Maturity

Spot Rates

Forward Rates

0.5

0.9

 f1= f(0,0.5)

1.0

1.3

f2 = f(0.5,1)

1.5

1.8

f3 = f(1,1.5)

2.0

2.3

f4 = f(1.5, 2)

1) Compute the bond price using the sport rates. The bond equation is: 

where Zt represent a zero rate at time t and Ct is a cash flow at time t

2) Calculate the respective implied forward rates from the corresponding spot rates.  

3) Calculate the bond price using the implied forward rates using the following equation.

Reference no: EM133059788

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