Corporate Finance Assume zero-coupon yields on default-free securities are as summarized in the following table: Maturity...

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Corporate Finance Assume zero-coupon yields on default-free securities are as summarized in the following table: Maturity...

Corporate Finance

Assume zero-coupon yields on default-free securities are as summarized in the following table:

Maturity (years) 1 2 3 4 5

Zero-coupon YTM_n 4.00% 4.30% 4.50% 4.70% 4.80%

1. What is the price of a three-year, default-free security with a face value of $1000 and an annual coupon rate of 4%? What is the yield to maturity for this bond?

2. Consider a four-year, default-free security with annual coupon payments and a face value of $1000 that is issued at par. What is the coupon rate of this bond?

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Answer 1

Answer #1

Maturity Zero YTN 2 4.3% 3 45% . 4 4.7% 5 4.8% 4% Annual coup = 0.04 x 1000 = 40 PV of bond = = Yam of band 40 40 + 10403 1.0

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Answer 2

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