Construct a synthetic equivalent of the bond

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Question: You have a 4-year coupon bond that pays semiannual interest. The coupon rate is 8% and the par value is 100.

a. Can you construct a synthetic equivalent of this bond? Be explicit and show your cash flows.

b. Price this coupon bond assuming the following term structure (represented by bid/ask prices at annual frequency) and by using a linear interpolation to discount semi-annual cash flows:

B1 = 0.90/0.91, B2 = 0.87/0.88, B3 = 0.82/0.83, B4 = 0.80/0.81

c. What is the 1 x 2 FRA rate?

Reference no: EM131696911

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