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Question 158.2. Bond price using spot rates Assume the following continuously compounded zero rates: 1.0% at 0.5 years; 1.6% at 1.0 year; 1.9% at 1.5 years; and 2.5% at 2.0 years. What is the theoretical price of a bond with a $100 principal that pays coupons at the rate of 2.0% semiannually? | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

A bond paying 2.0% annually with semiannual coupons pays $1 every six months, plus $100 principal at maturity. Discount each cash flow using the given continuously compounded spot rates:

1\cdot e^{-0.01\cdot 0.5} + 1\cdot e^{-0.016\cdot 1.0} + 1\cdot e^{-0.019\cdot 1.5} + 101\cdot e^{-0.025\cdot 2.0}

This equals $99.03.

So the correct answer is B.

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Question 158.2. Bond price using spot rates

Assume the following continuously compounded zero rates: 1.0% at 0.5 years; 1.6% at 1.0 year; 1.9% at 1.5 years; and 2.5% at 2.0 years. What is the theoretical price of a bond with a `$100` principal that pays coupons at the rate of 2.0% semiannually?

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