Suppose you are given the following information about the default-free,coupon-paying yield curve:Maturity (years)1Coupon rate (annual payments) 0.00YTM2.000%210.003.908%Show your work in Excel Solution.36.005.840%412.005.783%a. Use arbitrage to determine the yield to maturity of a two-year, zero-coupon bond.b. What is the zero-coupon yield curve for years 1 through 4?

In order to find the solution, we have to find the interminant coupon present value by discounting…

Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon rate (annual payments) 0.00 YTM 2.000% 2 10.00 3.908% 3 6.00 5.840% 4 12.00 5.783% a. Use arbitrage to determine the yield to maturity of a two-year, zero- coupon bond. b. What is the zero-coupon yield curve for years 1 through 4?

Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon rate (annual payments) 0.00 YTM 2.000% 2 10.00 3.908% 3 6.00 5.840% 4 12.00 5.783% a. Use arbitrage to determine the yield to maturity of a two-year, zero- coupon bond. b. What is the zero-coupon yield curve for years 1 through 4?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 adiscount, 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.)
The current zero-coupon yield curve for risk-free bonds is as follows What is the price per $100 face value of a four-year, zero-coupon, risk-free bond? The price per $100 face value of the four-year, zero-coupon, risk-free bond is $_______(Round to the nearest cent.)
Assume the zero-coupon yields on default-free securities are as summarized in the following table: 3 years 4 years 5 years Maturity 1 year 2 years 7.00% 7.30% 6.20% 6.50% 6.70% Zero-Coupon Yields What is the maturity of a default-free security with annual coupon payments and a yield to maturity of 6.20%? Why? What is the maturity of a default-free security with annual coupon payments and a yield to maturity of 6.20%? (Select the best choice below.) O A. One year В. Тwo years C. Three years D. Four years E. Five years
1. Consider a bond market where the demand for a particular bond is given by the equatione Bd = 2360 – 0.8P< where Bd is the number of bonds demanded and P is the price of the bond. Suppose the supply of this bond is fixed at 1400. (a) Calculate the price of the bonde (b) Suppose the bond is a consol with an annual coupon of 45. What is the yield on this security?
Please show work without calc or excel. In other words the actual equation.
The yield curve for default-free zero-coupon bonds is currently as follows: Maturity (years) YTM 1 9.8% 2 10.8 3 11.8 Required: a. What are the implied one-year forward rates? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Maturity (years) YTM Forward rate 1 9.8% 2 3 10.8% 11.8% % % b. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will the pure yield curve (that is, the yields to maturity on one- and two-year zero-coupon bonds) be next year? O There will be a shift upwards in next year's curve. O There will be a shift downwards in next year's curve. O There will be no change in next year's curve. c. What will be the yield to maturity on two-year zeros? (Do not round intermediate calculations. Round your answers to 2 decimal places.) YTM % d. If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current…
One of the above is the most accurate statement?a. A bond is trading at a premium if its yield to maturity approaches its annual coupon.b. As interest rates rise, a 10-year coupon bond's relative price adjustment would be higher than that of a 10-year nil coupon bond.c. A coupon bond's present yield matches the yield to maturity whether it sells at par.d. Both a and c are true.e. None of the above claims are true.
The value of any financial asset is the present ✓ value of the cash flows the asset is expected to produce. For a bond with fixed annual coupons, its value is equal to the present value of all its annual interest payments and its maturity value as shown in the equation below: Bond's value = VB: Int. Int. (1+ra)² (1+ra)² N + ·+...+ Int. M + (1+ra)* (1+ra) Int. M (1+ra) (1+ra)N + We could use the valuation equation shown above to solve for a bond's value; however, it is more efficient to use a financial calculator. Simply enter N as years to maturity, I/YR as the going annual interest rate, PMT as the annual coupon payment (calculated as the annual coupon interest rate times the face value of the bond), and FV as the stated maturity value. Once those inputs are entered in your financial calculator, you can solve for PV, the value of the bond. Remember that the signs for PMT and FV should be the same, so PV will have an opposite sign. Typically, you would enter PMT and FV as positive…
Suppose you are given the following information about the default- free, coupon-paying yield curve: maturity (years) 1 Coupon rate (annual payments) 0% YTM 2 10% 3.000% 4.908% 3 6% 6.840% Use arbitrage to determine the yield to maturity of a two-year and three year zero-coupon bond . (express in percentages, round to whole percentage)
am. 11.
Consider the characteristics of two annual pay bonds from the same issuer with the same priority in the event of default: You also observe the following spot interest rates from the current yield curve: Par value Coupons Maturity Coupon rate Yield to maturity Price Bond A $100 Annual 3 yrs 8% 10.25% 94.43 1 2 3 Bond B $100 Annual 3 yrs 4% 10.35% 84.31 Term (yrs) Spot Rates (zero coupon, %) 4% 7 10 Neither bond's price is consistent with the spot rates. Using the information in these displays, recommend either Bond A or Bond B for purchase. Justify your choice. Do not round intermediate calculations. Round your answers to the nearest cent. The non-arbitrage price of Bond A: $ The non-arbitrage price of Bond B: $ -Select- ✓ appears to be the better purchase.
3. Interest rate swap. Consider a portfolio of floating-rate bonds that all mature in three years. What is the fixed coupon rate for a fairly priced fixed-for-floating interest rate swap given the following discount factors? Years 2. 0.,95 06'0 0.86

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