Question

The following is a list of prices for zero-coupon bonds with different maturities but same par value of $1,000: the 1-year zero bond sells at $925.15, the 2-year zero bond sells at $862.57, the 3-year zero bond sells at $788.66, and the 4-year zero bond sells at $711.00. You have purchased a 4-year maturity bond with a 9% coupon rate paid annually. The bond has a par value of $1,000. What would be the price of the bond one year from now if the implied forward rates stay the same?

Answer 1

step - 1:

first we have to calculate YTM of zerocoupon bonds given

above image shows fomulas for calculating YTM

using the above rates we calculate present value of bond (at t = 0) .after that we calculate value of bond one year from now

present value of bond:

above is present value of bond.using the above value we will now calculate YTM of bond

using the above rate we caclulate value of the bond one year from now

so value of bond One year from now = $1005.36