Problem
You are currently working as a bond trader for JB Who Investment Bank. The Reserve Bank has just increased interest rates and a client is requesting a quote for the cash price of a particular bond. Your screen below displays the new zero interest rates with continuous compounding.
|
Maturity
(months)
|
Zero rate
(% pa)
|
|
3
|
12.50
|
|
6
|
12.90
|
|
9
|
13.40
|
|
12
|
13.80
|
|
15
|
13.90
|
The bond has a coupon rate of 12% pa paid quarterly and a face value of $100. The bond matures in 15 months. Using the rates above, calculate the bond price.