Math
posted by Robbie .
Termstructure of interest rates and Arbitrage
The current termstructure of spot interest rates for safe zerocoupon bonds is
as follows:
Maturity, in
years
Interest rate
(r)
1 8%
2 10%
3 11%
4 12%
5 13%
There is a safe bond B which has 4 years before maturity and pays a coupon
of 12% at regular annual intervals and a face value of £100 at maturity.
(a) What will be the current price of bond B? [5 Marks]
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