Estimate the zcb spot rate

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Reference no: EM132726250

A 1 year 10% coupon semiannual Corporate Bond is priced today at $1008 (Assume $1000 par). The first coupon will be paid 5 years from now.

a) Using the information in the table below, set up the equation and solve for the theoretical value of this bond.

Years to Maturity Annual Treasury ZCB Spot Rate (compounded semiannually)

.5 year 5% (2.5% semiannual basis)

1 year 6% (3% semiannual basis)

1.5 year ?

2 year ?

b) Is this bond overpriced or underpriced? (current price= $1,008)

c) Estimate the ZCB Spot Rate for 1.5 years to maturity if a reference semiannual bond with 1.5 years to maturity and 8% coupon is currently trading at $1023.

Reference no: EM132726250

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