Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity 1...
Assume the zero-coupon yields on default-free securities are as summarized in the following table:
|
Maturity |
1 year |
2 years |
3 years |
4 years |
5 years |
|
Zero-Coupon Yields |
4.70 |
|
% |
5.30 |
|
% |
5.60 |
|
% |
5.90 |
|
% |
6.00 |
What is the price of a three-year, default-free security with a face value of 1,000 and an annual coupon rate of 7 %
Homework Answers
Yearly coupon = 7% of 1000
= $70
Face value = $1000
Price of three year coupon bond = 1st year coupon/(1 + zero coupon yields in year 1) + 2nd year coupon/(1 + zero coupon yields in year 2)^2 + (3rd year coupon + face value)/(1 + zero coupon yields in year 1)^3
= 70/1.047 + 70/(1.053)^2 + 1070/(1.056)^3
= $1038.63
Add Answer to:
Assume the zero-coupon yields on default-free securities are
as summarized in the following table:
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