Question
In: Finance
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?
Solutions
Expert Solution
Price of default free zero coupon bond =Par Value/(1+1 year
rate)*(1+2 year rte)*(1+3 year rate)
=1000/((1+4%)*(1+4.30%)*(1+4.50%))=882.1980
YTM of this bond =(1000/882.1980)^(1/3)-1 =4.27%
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 4.90% 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
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?
The following table summarizes yields to maturity on several 1-year, zero-coupon securities:
The following table summarizes yields to maturity on several 1-year, zero-coupon securities:SecurityYieldTreasury2.860%AAA Corporate2.892%BBB Corporate 3.107%B Corporate3.950%a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA-rating and a face value of $1,000? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds?d. How does the credit spread change with the bond rating? Why?Note: Assume annual compounding.
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:
Security
Yield (%)
Treasury
3.08
AAA corporate
3.20
BBB corporate
4.22
B corporate
4.87
a. What is the price (expressed as a percentage of the face
value) of a one-year, zero-coupon corporate bond with a AAA
rating?
b. What is the credit spread on AAA-rated corporate bonds?
c. What is the credit spread on B-rated corporate bonds?
d. How does the credit spread change with the bond...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:
Security
Yield (%)
Treasury
3.093.09
AAA corporate
3.153.15
BBB corporate
4.204.20
B corporate
4.864.86
a. What is the price (expressed as a
percentage of the face value) of a one-year, zero-coupon
corporate bond with a AAA rating?
b. What is the credit spread on AAA-rated
corporate bonds?
c. What is the credit spread on B-rated
corporate bonds?
d. How does the credit spread change with the
bond...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:
Security
Yield (%)
Treasury
3.12
AAA corporate
3.26
BBB corporate
4.26
B corporate
4.96
a. What is the price (expressed as a percentage of the face
value) of a one-year, zero-coupon corporate bond with a
AAArating?
b. What is the credit spread on AAA-rated corporate bonds?
c. What is the credit spread on B-rated corporate bonds?
d. How does the credit spread change with the bond rating?...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities: Security Yield (%)
Treasury 3.063.06 AAA corporate 3.183.18 BBB corporate 4.184.18 B
corporate 4.844.84 a. What is the price (expressed as a percentage
of the face value) of a one-year, zero-coupon corporate bond with
a AAA rating? b. What is the credit spread on AAA-rated
corporate bonds? c. What is the credit spread on B-rated
corporate bonds? d. How does the credit spread change with the
bond...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities: Security Yield (%)
Treasury 3.08 AAA corporate 3.15 BBB corporate 4.17 B corporate
4.91
a. What is the price (expressed as a percentage of the face
value) of a one-year, zero-coupon corporate bond with a AAA
rating? b. What is the credit spread on AAA-rated corporate
bonds? c. What is the credit spread on B-rated corporate bonds?
d. How does the credit spread change with the bond...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities:
Security
Yield (%)
Treasury
3.063.06
AAA corporate
3.133.13
BBB corporate
4.124.12
B corporate
4.884.88
a. What is the price (expressed as a
percentage of the face value) of a one-year, zero-coupon
corporate bond with a AAA rating?
b. What is the credit spread on AAA-rated
corporate bonds?
c. What is the credit spread on B-rated
corporate bonds?
d. How does the credit spread change with the
bond...
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%)...
The following table summarizes the yields to maturity on
several one-year, zero-coupon securities: Security Yield (%)
Treasury 3.07 AAA corporate 3.19 BBB corporate 4.14 B corporate
4.85 a. What is the price (expressed as a percentage of the face
value) of a one-year, zero-coupon corporate bond with a AAA
rating? b. What is the credit spread on AAA-rated corporate
bonds? c. What is the credit spread on B-rated corporate bonds?
d. How does the credit spread change with the bond...
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