Question
In: Finance
3. Consider the following data on the prices of four bonds: Bond Principal($) Time to Maturity(Years)...
3. Consider the following data on the prices of four bonds:
| Bond Principal($) | Time to Maturity(Years) | Annual Coupon($) | Bond Price($) |
| 100 | 0.50 | 0 | 92.0 |
| 100 | 1.00 | 0 | 91.0 |
| 100 | 1.50 | 3 | 99.0 |
| 100 | 2.00 | 6 | 104.0 |
*Half the stated coupon is assumed to be paid every six months:
Calculate two-year zero rate.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Prices of several bonds are given below: *Half Bond Principal($) Time to maturity(years) Annual coupon*($) Bond...
Prices of several bonds are given below:
*Half
Bond Principal($)
Time to maturity(years)
Annual coupon*($)
Bond price($)
100
0.5
0
98.9
100
1
0
97.5
100
1.5
4
101.6
100
2
4
101.9
the stated coupon is assumed to be paid semiannually.
(a) Use the bootstrap method to find the 0.5-year, 1-year, 1.5-year
and 2-year zero rates per annum with continuous compounding.
(b) What is the continuously compounded forward rate for the period
between the 1-year point and the 2-year...
The following table gives information about several bonds. Bond Principal Time to Maturity (years) Semi-Annual Coupon...
The following table gives information about several bonds.
Bond Principal
Time to Maturity
(years)
Semi-Annual Coupon
($)
Bond Price
($)
100
0.5
0
97.53
100
1.0
0
94.65
100
1.5
4
102.74
100
2.0
5
105.46
Calculate the zero rates for maturities 0.5, 1.0, 1.5 and 2.0
years. (4 points) (Hint: to compute the zero rates for maturities
1.5 and 2, you need to “Bootstrap” the zero curve – please refer to
the Addendum on Bootstrapping on BB for details.)...
Bond Principal ($) Time to Maturity (years) Annual Coupon ($) Bond Price ($) Coupon Payment Frequency...
Bond Principal ($)
Time to Maturity (years)
Annual Coupon ($)
Bond Price ($)
Coupon Payment Frequency
100
1.00
0
97
100
2.00
4
100.0
(A)
100
3.00
5
99.0
(A)
100
4.00
6
100.0
(A)
100
5.00
6
98.0
(A)
A = Annual
Compute the continuously compounded yields of these five
bonds.
Compute the continuously compounded zero rates for maturities
of 1,2,3,4, and 5 years.
Consider the following three zero-coupon bonds: Bond Face Value Time to Maturity (Years) Market Price 1...
Consider the following three zero-coupon bonds: Bond Face Value
Time to Maturity (Years) Market Price 1 $1,000 1 $940 2 $1,000 2
$820 3 $1,000 3 $768 a). Calculate the one-, two-, and three-year
spot rates
b). Calculate the forward rate over the second year, and the one
corresponding to the third year.
c). What price of the third bond would risk-neutral investors
expect to prevail at the end of the second year?
d). Now assume that investors are risk...
Consider the following three bonds: Bond Price Coupon Rate Time-to-Maturity A 96.000 8% 6 years B...
Consider the following three bonds:
Bond
Price
Coupon Rate
Time-to-Maturity
A
96.000
8%
6 years
B
98.000
9%
8 years
C
105.000
9%
6 years
Which bond will most likely experience the smallest percentage
change in price if the market discount rate for all three bonds
increases by 100 basis points? Explain your logic in 2-4 sentences.
Show Calculations and Formulas of how you arrived to this
answer.
Consider the following bonds Bond Coupon Rate (Annual Payments) Maturity(Years) A 3% 8 B 5% 8...
Consider the following bonds
Bond
Coupon Rate (Annual Payments)
Maturity(Years)
A
3%
8
B
5%
8
C
3%
4
D
5%
4
Which of the bonds (A – D) is most sensitive to a 1% increase in
interest rates. Which is least sensitive?
Consider the following $1,000 par value zero-coupon bonds: Bond Years until Maturity Yield to Maturity A...
Consider the following $1,000 par value zero-coupon
bonds:
Bond
Years until
Maturity
Yield to Maturity
A
1
7.25
%
B
2
8.25
C
3
8.75
D
4
9.25
a. According to the expectations hypothesis, what
is the market’s expectation of the one-year interest rate three
years from now? (Do not round intermediate
calculations. Round your answer to 2
decimal places.)
b. What are the expected values of next year’s
yields on bonds with maturities of (a) 1 year; (b) 2...
Consider the following $1,000 par value zero-coupon bonds: Bond Years until Maturity Yield to Maturity A...
Consider the following $1,000 par value zero-coupon bonds:
Bond
Years until
Maturity
Yield to Maturity
A
1
8.50
%
B
2
9.50
C
3
10.00
D
4
10.50
a. According to the expectations hypothesis, what
is the market’s expectation of the one-year interest rate three
years from now? (Do not round intermediate
calculations. Round your answer to 2
decimal places.)
b. What are the expected values of next year’s
yields on bonds with maturities of (a) 1 year; (b) 2...
Consider two bonds. The first is a 6% coupon bond with six years to maturity, and...
Consider two bonds. The first is a 6% coupon bond with six years
to maturity, and a yield to maturity of 4.5% annual rate,
compounded semi-annually. The second bond is a 2% coupon bond with
six years to maturity and a yield to maturity of 5.0%, annual rate,
compounded semi-annually. a. Draw a cash flow diagram for each
bond. b. Calculate the current price per $100 of face value for
each bond.
Consider two bonds. The first is a 6% coupon bond with six years to maturity, and...
Consider two bonds. The first is a 6% coupon bond with six years
to maturity, and a yield to maturity of 4.5% annual rate,
compounded semi-annually. The second bond is a 2% coupon bond with
six years to maturity and a yield to maturity of 5.0%, annual rate,
compounded semi-annually.
1. Calculate the current price per $100 of face value of each
bond. (You may use financial calculator to do question 1 and 2, I'm
just unsure how to use...
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