Interest rates are expressed as annualized rates for the term specified. Report your interest rate answers as fractional numbers like 0.11 for 11% per year.
Problem .
The current price of a 6-month zero coupon bond with a face value of $100 is B1. If a 9-month strip with a face value of $100 is currently trading for B2, find the forward interest rate for the 6 to 9 month period. Solve by both continuous compounding and quarterly compounding. Write your answers for the following:
1. Six-month spot interest rate for quarterly compounding.
2. Nine-month spot interest rate for quarterly compounding.
3. Forward rate (6 to 9 months) for quarterly compounding.
4. Six-month spot interest rate for continuous compounding.
5. Nine-month spot interest rate for continuous compounding.
6. Forward rate (6 to 9 months) for continuous compounding.
7. What is the guaranteed fair price of a 3-month T-Bill to be delivered at 6 months from now, assuming quarterly compounding?
8. What is the guaranteed fair price of a 3-month T-Bill to be delivered at 6 months from now, assume continuous compounding?
B1=93.6
B2=92.6