Question

Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $93.27, while a 2-year zero sells at $83.53. 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 11% 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.) Yield to Maturity 2-year zero 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.) Yield to Maturity 2-year coupon bond

Answer 1

Face value $100, I year Zero Conson band, price - 193.27 2 year Zero @ & 13.53 Confrontate 11% Considering 2 year maturity band, face vahe 100 a) yim of 2 yer Zero - 10o 83.55 = tot → (+)= 119712 9.415 % tr = 1.0945 r = 0.09415 or So yTM of zyear Zero = 9.415% 1.A $100 x rate= 7.2157 Pyerye) = $93.27= 1.07215 1100 > rate= 9.45% $ 83.53 Yeryer) = VI with combiel rates) 40.07255 +1 0.094152 10.2597 & 92,0191 & 102.9788

b. 2 your consenband Coupon rate - 11% 102.9788 Catering to listen => YTM = 9.299%, P.A.
a) ytm of a 2 year zero = 9.415%

B) ytm of a 2 year coupon bond = 9.299%

Detailed calculations are attached.