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Question 1. You are trying to price a bond with $1000 face value using the following yield curve. The bond will mature in exactly 4 years and pays semi-annual coupon at a rate of 8%.
a. Assuming that YTM for years 0.5 and 1 are from zero-coupon bonds. Find the theoretical spot rates for other maturities (1.5 Years to 4 Years}.
b. In What is the price of the bond using theoretical spot rates appropriate for each coupon and principal?
c. What is the YTM of this bond?
Time (year) YTM (‘51:)
0 .5 5.25
1 5. 5
1 .5 5.?5
2 6
2 .5 6.25
3 6. 5
3 .5 6.?5
4 6. B
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