Assume the​ zero-coupon yields on​ default-free securities are as summarized in the following​ table: Maturity1 year2 years3 years4 years5 years​Zero-Coupon Yields4.0%4.3​%4.5​%4.7%4.8% What is the price today of a​ two-year, default-free security with a face value of $1,000 and an annual coupon rate of 6%​? Does this bond trade at a​discount, at​ par, or at a​ premium?What is the price today of a​ two-year, default-free security with a face value of $1,000 and an annual coupon rate of 6%​? The price is $_____. ​(Round to the nearest​ cent.)

Question
Asked Mar 29, 2019
387 views
Assume the​ zero-coupon yields on​ default-free securities are as summarized in the following​ table:
 
Maturity
1 year
2 years
3 years
4 years
5 years
​Zero-Coupon Yields
4.0%
4.3​%
4.5​%
4.7%
4.8%
 
What is the price today of a​ two-year, default-free security with a face value of $1,000 and an annual coupon rate of 6%​? Does this bond trade at a​discount, at​ par, or at a​ premium?
What is the price today of a​ two-year, default-free security with a face value of $1,000 and an annual coupon rate of 6%​?
 
The price is $_____. ​(Round to the nearest​ cent.)
 
check_circle

Expert Answer

Step 1

Calculation of coupon value:

fullscreen
Step 2

Calculation of price today of a two year, default free security:

fullscreen
Step 3

Whether the bond is trades at discount, at​ par, or at a premium:

The bond trades at premium as the coupon rate is higher than the zer...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its n...

A: All financials below are in $.D0 = 0.85There are three stages of growth: g1 =28% for next two years ...

question_answer

Q: Suppose a family has a gross annual income of $43,200.   a. What is the maximum amount the family sh...

A: Most financial advisors recommend that one limit his mortagage payment to 28% of the monthly income ...

question_answer

Q: The following numbers were randomly generated from a standard normal distribution: -0.25    0.3     ...

A: The formula for simulated price,S based on the initial closing price of S0 will be given by the equa...

question_answer

Q: The common stock of Company XLT and its derivative securities currently trade in the market at the f...

A: Part (a)Let's denote current stock price as S0, call premium as C, put premium as P, strike price as...

question_answer

Q: Mexican Motor's market cap is 200 billion pesos. Next year's cash flow is 8.6 billion pesos. Securit...

A: Mexican Motor's market cap, E = 200 billion pesos.Next year's cash flow, C =  8.6 billion pesos.Secu...

question_answer

Q: Storico Co. just paid a dividend of $1.45 per share. The company will increase its dividend by 24 pe...

A: D0 = $1.45;Year1 growth rate = g1 = 24%;Year 2 growth rate, g2 = g1 - 6% = 24% - 6% = 18%Year 3 grow...

question_answer

Q: Consider the following information and then calculate the required rate of return for the Global Equ...

A: Beta of the portfolio, Bp = Sum of investment proportion weighted beta of the individual security.Pl...

question_answer

Q: As the chief investment officer for a money management firm specializing in taxable individual inves...

A: Part (a)Expected Utility function = E(U) = ER - σ2 / Risk Tolerance FactorPlease see the table below...

question_answer

Q: Suppose that C is the price of a European call option to purchase a security whose present price is ...

A: As a first step, let's assimilate the information given to us:Current stock price is SC is the price...