Observed prices questions

Could one of you please assist with question 4 shown in the image above?

Thank you in advance! JR


closed as off-topic by LocalVolatility, Alex C, Helin, Bob Jansen Oct 10 '17 at 5:06

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    $\begingroup$ I am voting to close this question for being too basic. It also shows no effort whatsoever. $\endgroup$ – LocalVolatility Oct 9 '17 at 22:40
  • $\begingroup$ Hey LocalVolatility, we all have to start some where. $\endgroup$ – johnrogers Oct 9 '17 at 22:42
  • $\begingroup$ Please see quant.stackexchange.com/help/on-topic for what is on-topic here. $\endgroup$ – LocalVolatility Oct 9 '17 at 22:43

Bonds X and Y pay semiannual coupons. Then the cash flow for X is a single payment at the maturity of 3\$ (half of 6\$ since it's semiannual) plus the par value. The discounted cash flow has to equal the price of the bond.
Then you have :$$100,98 = \frac{103}{1+R_{0.5}}$$ Solving for $R_{0.5}$ gives you 2%

Then you can perform the same calculation for Y, knowing that you have a first cash flow of 4\$ (that has to be discounted with $R_{0.5}$) for the first 6-month period and a second for the second period for the coupon and the principal payment (that should be discounted with $R_1$).


I wish I could "add a comment" to your answer but I can't for the moment.
Of course, the coupon for Y is 4\$ I corrected my answer. However, you are missing to square the denominator (because you are discounting the cash flow of the second period). You should have : $$103.59 = \frac{4}{1+R_{0.5}} + \frac{104}{(1+R_1)^2}$$ Since you know $R_{0.5}$ you can solve for $R_{1}$.
Hope this helped!


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