Part 1 Consider a five-year, default-free bond with annual coupons of 5% and a face value of $1,000 and assume 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 4.00% 4.30% 4.50% 4.70% 4.80% a. What is the yield to maturity on this bond? b. If the yield to maturity on this bond increased to 5.20%, what would the new price be?
Part 1 Consider a five-year, default-free bond with annual coupons of 5% and a face value of $1,000 and assume 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 4.00% 4.30% 4.50% 4.70% 4.80% a. What is the yield to maturity on this bond? b. If the yield to maturity on this bond increased to 5.20%, what would the new price be?
Chapter5: The Cost Of Money (interest Rates)
Section: Chapter Questions
Problem 20PROB
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Question
Part 1
Consider a five-year, default-free bond with annual coupons of
5%
and a face value of
$1,000
and assume 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 | 4.00% | 4.30% | 4.50% | 4.70% | 4.80% |
a. What is the yield to maturity on this bond?
b. If the yield to maturity on this bond increased to
5.20%,
what would the new price be?
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