Consider the following three zero-coupon (discount) bonds:
Bond |
Face Value |
Time to Maturity |
Market Price |
1 |
$1,000 |
One year |
$924.64 |
2 |
$1,000 |
Two years |
$841.53 |
3 |
$1,000 |
Three years |
$744.59 |
a) Calculate the one-, two-, and three-year spot rates.
b) Calculate the forward rate over the second year and the forward rate over the third year.
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
Consider the following three zero-coupon (discount) bonds: Bond Face Value Time to Maturity Market Price 1...
Consider the following three zero-coupon (discount) bonds: Face Value Market Pricee Time to Maturity Bond $924.64 One year $1,000 1e $841.53 Two years $1,000 2e $744.59 Three years $1,000 3 a) Calculate the one-, two-, and three-year spot rates. (3 marks) b) Calculate the forward rate over the second year and the forward rate over the third year. (2 marks)
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