To obtain the d(1.0) discount factor, first solve for d(0.5). In the equation below, the price for Bond A is equated to its terminal cash flow in six months, which is the principal plus the semiannual coupon of $3.00.

$`$101.18`2 = 103.00 \times d(0.5)

$$$$

d(0.5) = 0.9823

Next, use the price and cash flows of Bond B to calculate the d(1.0) discount factor. The cash flow in six months is the semiannual coupon of `$6.00` and is discounted by d(0.5). The cash flow in one year is the principal plus the semiannual coupon of `$6.00`. $`$102.34`1 = 6.00 \times d(0.5) + 106.00 \times d(1.0)

$`$102.34`1 = 6.00 \times 0.9823 + 106.00 \times d(1.0)

$$$$

d(1.0) = 0.9099

$$(Book 4, Module 56.2, LO 56.b)$$