Question
In: Finance
Prices of zero-coupon, default-free securities with face values of $1,000 are summarized in the following table:...
Prices of zero-coupon, default-free securities with face values of $1,000 are summarized in the following table:
|
Maturity (years) |
1 |
2 |
3 |
| Price (per
$1,000 face value) |
$971.11 |
$937.99 |
$903.61 |
Suppose you observe that a three-year, default-free security with an annual coupon rate of 10% and a face value of $1,000 has a price today of $1,182.73. Is there an arbitrage opportunity? If so, show specifically how you would take advantage of this opportunity. If not, why not?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity 1...
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
4.00%
4.30%
4.50%
4.70%
4.80%
What is the price of a three-year, default-free security with a
face value of $1,000 and an annual coupon rate of 4%? What is the
yield to maturity for this bond?
Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity 1...
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 4.90% 5.30% 5.60%
5.90% 6.10% Consider a four-year, default-free security with
annual coupon payments and a face value of $1,000 that is issued at
par. What is the coupon rate of this bond? The par coupon rate
is
The prices of several bonds with face values of $1,000 are summarized in the following table:...
The prices of several bonds with face values of
$1,000
are summarized in the following table:
Bond
A
B
C
D
Price
$972.50
$1,040.75
$1,150.00
$1,000.00
For each bond, state whether it trades at a discount, at par,
or at a premium.
The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face...
The following table summarizes prices of various default-free
zero-coupon bonds (expressed as a percentage of face value):
Maturity (years)
1
2
3
4
5
Price (per $100 face value)
94.52
89.68
85.40
81.65
78.35
The yield to maturity for the five-year zero-coupon bond is
closest to:
A. 5.0%
B. 5.8%
C. 5.4%
D. 5.6%
E. 6.0%
The following table shows prices per $100 face value of default-free zero-coupon bonds: MATURITY (Years) 1...
The following table shows prices per $100 face value of
default-free zero-coupon bonds:
MATURITY
(Years)
1
2
3
4
5
Price
94.52
89.68
85.4
81.65
78.35
Draw the yield curve. You may assume annual compounding.
The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of the...
The following table summarizes prices of various default-free
zero-coupon bonds (expressed as a percentage of the face value):
Maturity (years) 1 2 3 4 5 Price (per $100 face value)
$95.3295.32 $90.9690.96 $86.2886.28 $81.4381.43 $76.2976.29 a.
Compute the yield to maturity for each bond. b. Plot the
zero-coupon yield curve (for the first five years). c. Is the
yield curve upward sloping, downward sloping, or flat?
The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of the...
The following table summarizes prices of various default-free
zero-coupon bonds (expressed as a percentage of the face
value):
Maturity (years) 1 2 3 4 5
Price (per $100 face value) $95.06, $90.74, $86.20, $81.41,
$76.40
a. Compute the yield to maturity for each bond.
b. Plot the zero-coupon yield curve (for the first five
years).
c. Is the yield curve upward sloping, downward sloping, or
flat?
The following table summarizes prices of various default-free zerocoupon bonds (expressed as a percentage of face...
The following table summarizes prices of various default-free
zerocoupon bonds (expressed as a percentage of face value):
Maturity(years)
1
2
3
4
5
Price(per $100 face value)
96.15
89.85
85.16
82.27
80.25
3.1 Compute the yield to maturity (YTM) for each of the five
zero-coupon bonds and plot the zero-coupon yield curve (for the
first five years). For a typical coupon bond, what are the two
conditions that have to be met for the computed or promised YTM to
be...
The following table records current prices for zero-coupon bonds of various maturities (all securities have a...
The following table records current prices for zero-coupon bonds
of various maturities (all securities have a face value of
$1000):
Price ($)
Bond Maturity (Years) A 1 970.87
B 2 933.51
C 3 889.00
Use the prices to value a bond with a coupon rate of 7% per
year, $100,000 face value, and three years remaining to maturity
(annual coupon payments). The next coupon payment is one year away
(i.e., at time 1).
The yield on a default-free four-year zero-coupon bond is 3%; the yield on a default-free five-year...
The yield on a default-free four-year zero-coupon bond is 3%;
the yield on a default-free five-year zero-coupon bond is 4.5%. The
bonds have a face value of $1000 and are traded in an open market.
You are a money manager and know that you will have a net inflow of
$100,000 four years from now, and an obligation (i.e. a net
outflow) of $100,000 one year later (i.e. five years from now).
Once you get your inflow, you plan to...
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