Question

Below is a list of prices for zero-coupon bonds of various maturities. Price of $1,000 Par Maturity (Years) Bond (Zero-Coupon) $966.78 894.28 803.54 WN a. A 6.4% coupon $1,000 par bond pays an annual coupon and will mature in 3 years. What should the yield to maturity on the bond be? (Round your answer to 2 decimal places.) Yield to maturity % b. If at the end of the first year the yield curve flattens out at 8.1%, what will be the 1-year holding-period return on the coupon bond? (Round your answer to 2 decimal places.) Holding-period return

Answer 1

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BOND- Microsoft Excel (Product Activation Failed) Page Layout File Home Insert Formulas Data Review View Add-Ins Z AutoSum- Cut AC Wrap Text Calibri 11 General Copy Fill Conditional Format Formatting as Table Styles Merge & Center $ % Insert Delete Format Paste B I U 000 Cell Sort & Find & Format Painter Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing fox HZ121 HS HT HU HV HW НХ HY HZ IA IB 120 121 face value = 1000 same as maturity value 122 maturity RATE formula 123 price 3.4361% [(1000/HW124)^1 -1] 5.7458% [=(1000/HW125)^(1/2) -1] 7.5633% (1000/HW126)^(1/3) 1] 124 1 966.78 125 2 894.28 126 3 803.54 127 128 PRESENT VALUE OF COUPON +PRINCIPAL 129 YEAR COUPON PRINCIPAL ZERO COUPON RATE 61.87 64/(1 57.23 64/(10.057458)^2 1)^1 130 1 64 3.4361% 131 2 64 5.7458% 854.97 1064/(1 +0.075633)^3 1064 132 3 7.5633% 133 134 974.07 135 PRICE OF THE BOND = PRESENT VALUE 136 ANS 1 7.40% EXCEL -RATE(3,-64,974.07,-1000) 137 YIELD TO MATURITY = 138 NOTE S1S3 S6 Sheet2 EUAC AW LIFE S4 $5 | ш AFN LP, IP, MRP, INFLATION WARRANT refund YIELD SPOT BANKING CLEAN PRICE S10 BIDDING,UNDERWRITING (-. erences 130% W 07:21 ENG 27-11-2019

BOND- Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut AS Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Paste +.0 .00 .00 0 Conditional Format Cell Sort & Find & BIU % Format Painter Clear Filter Select Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing fox HV151 HS HT HU HV HW HX HY HZ IA IB 138 YTM 139 AFTER A YEAR 8.1% 140 LIFE REMAINING 2 969.73 EXCEL =PV(HX139,HX140,-85, -1000) 141 PRICE OF THE BOND 142 HOLDING PERIOOD RETURN = (P1+C1-PO)/PO 6.12% [(969.73 64 - 974.07)/974.07] 143 ANS 2 P1 969.73 144 145 PO 974.07 146 C1 64 147 148 149 150 151 152 153 154 155 156 BANKING NOTE S1S3 Sheet2 S5 S6 EUAC AW LIFE S4 AFN BIDDING, UNDERWRITING LP, IP, MRP, INFLATION YIELD SPOT CLEAN PRICE S10 WARRANT refund Rea (-. erences 130% WA 07:23 ENG 27-11-2019