Question

In: Finance

Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $91.89, while a...

Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $91.89, while a 2-year zero sells at $83.37. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 7% per year.

a. What is the yield to maturity of the 2-year zero?(Do not round intermediate calculations. Round your answers to 3 decimal places.)

b. What is the yield to maturity of the 2-year coupon bond? (Do not round intermediate calculations. Round your answers to 3 decimal places.)


c. What is the forward rate for the second year? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)


d. If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e. Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?

  • Higher

  • Lower

Solutions

Expert Solution


Related Solutions

Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $86.85, while a...
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $86.85, while a 2-year zero sells at $78.61. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 10.5% per year. a. What is the yield to maturity of the 2-year zero?(Do not round intermediate calculations. Round your answers to 3 decimal places.) b. What is the yield to maturity of...
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $95.43, while a...
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $95.43, while a 2-year zero sells at $77.31. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 12.5% per year. a. What is the yield to maturity of the 2-year zero?(Do not round intermediate calculations. Round your answers to 3 decimal places.) b. What is the yield to maturity of...
1.Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $91.20, while a...
1.Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $91.20, while a 2-year zero sells at $84.28. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 6% per year. a.What is the yield to maturity of the 2-year zero? b.What is the yield to maturity of the 2-year coupon bond? c.What is the forward rate for the second year?...
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $94.34, while a 2-year zero sells at $84.99.
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $94.34, while a 2-year zero sells at $84.99. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 12% per year.a) What is the yield to maturity of the 2-year zero?b) What is the yield to maturity of the 2-year coupon bond?c) What is the forward rate for the second year?d)...
Suppose that a 1 year zero coupon bond with a face of $100 sells at $94.34....
Suppose that a 1 year zero coupon bond with a face of $100 sells at $94.34. While a zero 2 year sells at $84.99. You are considering the purchase of a 2 year maturity bond making annual coupon payments. The face value of the bond is $100 and the coupon rate is 12% per year. 1. What is the yield to maturity of the 2 year zero? 2. What is the yield to maturity of the 2 year coupon bond?...
Suppose a one-year zero-coupon bond with face value $100 is trading at $90.909. The corresponding YTM...
Suppose a one-year zero-coupon bond with face value $100 is trading at $90.909. The corresponding YTM for this bond is ___%
Suppose a 10-year zero coupon Treasury bond with a face value of $10, 000 sells for $6,000.
Suppose a 10-year zero coupon Treasury bond with a face value of $10, 000 sells for $6,000. a. Find the bond value. b. Suppose the price of the above bond rose to Kshs 7,500, find the new yield. c. Explain what happens when interest rates increase.
A zero-coupon bond with $1000 face value has 10-year to maturity. If this bond is currently...
A zero-coupon bond with $1000 face value has 10-year to maturity. If this bond is currently trading at $463.20. What is this bond’s YTM (i.e., required rate of return)? What is the coupon rate for a bond with three years until maturity, a price of $953.46, and a yield to maturity of 6%? Assume the bond’s face value is $1,000. Kodak has a bond with 10 year until maturity, a coupon rate of 10%, and selling for $1,200. This bond...
Suppose a 15-year bond with $100 face value, 8.00% coupon rate and semiannual coupons is currently...
Suppose a 15-year bond with $100 face value, 8.00% coupon rate and semiannual coupons is currently trading at par. All else constant, if the yield to maturity of the bond suddenly changes to 7.00% APR, what will happen to this bond’s price? Group of answer choices it will decrease by $9.108 it will decrease by $8.745 it will increase by $9.196 it will stay the same
Suppose a 15-year bond with $100 face value, 5.50% coupon rate and quarterly coupons is currently...
Suppose a 15-year bond with $100 face value, 5.50% coupon rate and quarterly coupons is currently trading at par. All else constant, if the yield to maturity of the bond suddenly changes to 8.00% APR, what will happen to this bond’s price?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT