Suppose that you purchase a $1,000 zero-coupon bond that matures 3 years from now and is...

Suppose that you purchase a $1,000 zero-coupon bond that matures 3 years from now and is priced to yield 4.5%., Assume interest is compounded semi-annually.

a. How much will you pay for the bond with exactly 3 years to maturity?

b. One year later, if interest rates remain the same, what will be the price of the bond?

c. If you paid $850 for the bond with 3 years to maturity, and held it until maturity, what will be your expected return (i.e. yield-to-maturity)?

Expert Solution

jeff jeffy answered 4 months ago

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