Suppose the one year spot rate and two year spot rate are both 3%. a) What...
Homework Answers
Zero Coupon Bond Price = F / (1 + i)^n
where:
F = face value or maturity value = 100 (Assuming bond will mature at $100. This assumption is based on the historical data as Zero coupon bonds usually have maturity value $100, $1000 and so on)
i = interest rate = 3%
n = maturity period = 1 year and 2 year
a) What is the price of a two year ZCB?
Price = 100 / (1 + 0.03)^2 = 94.26 (Rounded off to two decimal )
b) What is the price of a one year ZCB today?
Price = 100 / (1 + 0.03) = 97.09 (Rounded off to two decimal)
c) What do I expect the price of a one year ZCB to be, one year from now?
It would be $100 as ZCB is maturing after one year from now and maturity price is 100
Same 3 questions except now the one year spot rate is 3% and the 2 year spot rate is 4%.
a) What is the price of a two year ZCB?
Price = 100 / (1 + 0.04)^2 = 92.46 (Rounded off to two decimal )
b) What is the price of a one year ZCB today?
Price = 100 / (1 + 0.03) = 97.09 (Rounded off to two decimal)
) What do I expect the price of a one year ZCB to be, one year from now?
It would be $100 as ZCB is maturing after one year from now and maturity price is 100
Same 3 questions except now the one year spot rate is 3% and the 2 year spot rate is 2%.
a) What is the price of a two year ZCB?
Price = 100 / (1 + 0.02)^2 = 96.12 (Rounded off to two decimal )
b) What is the price of a one year ZCB today?
Price = 100 / (1 + 0.03) = 97.09 (Rounded off to two decimal)
) What do I expect the price of a one year ZCB to be, one year from now?
It would be $100 as ZCB is maturing after one year from now and maturity price is 100
Add Answer to:
Suppose the one year spot rate and two year spot rate are both
3%.
a) What...
2) Suppose the one year spot rate and two year spot rate are both 3%. a)...
2) Suppose the one year spot rate and two year spot rate are both 3%. a) What is the price of a two year ZCB? b) What is the price of a one year ZCB today? c) What do I expect the price of a one year ZCB to be, one year from now? Same 3 questions except now the one year spot rate is 3% and the 2 year spot rate is 4%. Same 3 questions except now the...
2) Suppose the one year spot rate and two year spot rate are both 3%. a)...
2) Suppose the one year spot rate and two year spot rate are both 3%. a) What is the price of a two year ZCB? b) What is the price of a one year ZCB today? c) What do I expect the price of a one year ZCB to be, one year from now?
2) Suppose the one year spot rate is 3% and two year spot rate is 4%....
2) Suppose the one year spot rate is 3% and two year spot rate is 4%. a) What is the price of a two year ZCB? b) What is the price of a one year ZCB today? c) What do I expect the price of a one year ZCB to be, one year from now?
9. (10 points) Suppose that the spot in spot interest rate on a two-year zero-com year...
9. (10 points) Suppose that the spot in spot interest rate on a two-year zero-com year Zero-coupon bond is 40 ar zero-coupon bond is 3.0%, the Assume annual compound a. (6 points) Based on the pure expectat is the expected one-year inte approximation from class.) se that the spot interest rate one-year zero-coupon Zero-coupon bond is 4.0 and the spot interest rate on a three al compounding throughout the problem. points) Based on the nume r ations theory of the...
You are given the following benchmark spot rates: Maturity Spot Rate 1 2.90% 2 3.20% 3...
You are given the following benchmark spot rates: Maturity Spot Rate 1 2.90% 2 3.20% 3 3.60% 4 4.20% a) Compute the forward rate between years 1 and 2. b) Compute the forward rate between years 1 and 3. c) What is the zero price today of a five-year zero-coupon bond if the forward price for a one-year zero-coupon bond beginning in four years is known to be 0.9461 d) Calculate the price of a 4% annual coupon corporate bond...
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest t...
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest to? (10 points) b. The four-year spot rate is not given above; however, the forward price for a one-year zero-coupon bond beginning in three years is known to be 0.8400. The price today of a four-year zero-coupon bond is closest to? (5 points)
14, A one-year zero coupon...
Term 1 5.00% 2 6.59% 3 6.80% 4 7.00% Spot Rate One year from now, you...
Term 1 5.00% 2 6.59% 3 6.80% 4 7.00% Spot Rate One year from now, you are considering the purchase of a 3 year zero coupon bond with a par value of 1,000. What price would you pay for the bond in one year? Round to the nearest dollar.
Debt & Bonds 1. The table below presents the spot rates an investor faces. Year Spot...
Debt & Bonds
1. The table below presents the spot rates an investor
faces.
Year
Spot Rate
1
2%
2
3%
3
4%
4
5%
Assume that, for each maturity, there is a zero-coupon bond
traded in the market. These zeros pay $1,000 at their respective
maturity.
a. Is the term structure positive, inverted, or flat?
b. What is the forward rate from t=1 to t=2?
c. Suppose that the investor is expecting to receive $1 million
at t=1. This...
9. The market prices of zero coupon bonds are as follows Time to maturi Price 97.08 93.35 88.90 83.86 4 (a) Compute the one-year forward rate and the two-year forward rate one-year from now [i.e. com...
9. The market prices of zero coupon bonds are as follows Time to maturi Price 97.08 93.35 88.90 83.86 4 (a) Compute the one-year forward rate and the two-year forward rate one-year from now [i.e. compute fi2 and fi 31. Express them in annualized form. 4% and 4.5% (b) Suppose you can enter a contract to borrow or lend at a one-year forward rate [ h+2 ] of 4.5%. You can take long or short positions in any of the...
(1.) Consider the following annualized spot yields: Maturity Annualized Spot Rate One Year 5.00% Two Years...
(1.) Consider the following annualized spot yields: Maturity Annualized Spot Rate One Year 5.00% Two Years 5.50% Three Years 6.00% Four Years 6.00% Five Years ? (a.) Assuming the expectations theory of the term structure is correct, calculate the expected one-year interest rate one year from now (i.e. 1f2). (b.) Assuming the expectations theory of the term structure is correct, calculate the expected one-year interest rate three years from now (i.e. 3f4). (c.) Suppose a forecasting service predicts that th...
2) Suppose the one year spot rate and two year spot rate are both 3%. a) What is the price of a two year ZCB? b) What is the price of a one year ZCB today? c) What do I expect the price of a one year ZCB to be, one year from now? Same 3 questions except now the one year spot rate is 3% and the 2 year spot rate is 4%. Same 3 questions except now the...
2) Suppose the one year spot rate and two year spot rate are both 3%. a) What is the price of a two year ZCB? b) What is the price of a one year ZCB today? c) What do I expect the price of a one year ZCB to be, one year from now?
2) Suppose the one year spot rate is 3% and two year spot rate is 4%. a) What is the price of a two year ZCB? b) What is the price of a one year ZCB today? c) What do I expect the price of a one year ZCB to be, one year from now?
9. (10 points) Suppose that the spot in spot interest rate on a two-year zero-com year Zero-coupon bond is 40 ar zero-coupon bond is 3.0%, the Assume annual compound a. (6 points) Based on the pure expectat is the expected one-year inte approximation from class.) se that the spot interest rate one-year zero-coupon Zero-coupon bond is 4.0 and the spot interest rate on a three al compounding throughout the problem. points) Based on the nume r ations theory of the...
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest to? (10 points) b. The four-year spot rate is not given above; however, the forward price for a one-year zero-coupon bond beginning in three years is known to be 0.8400. The price today of a four-year zero-coupon bond is closest to? (5 points)
14, A one-year zero coupon...
Term 1 5.00% 2 6.59% 3 6.80% 4 7.00% Spot Rate One year from now, you are considering the purchase of a 3 year zero coupon bond with a par value of 1,000. What price would you pay for the bond in one year? Round to the nearest dollar.
Debt & Bonds
1. The table below presents the spot rates an investor
faces.
Year
Spot Rate
1
2%
2
3%
3
4%
4
5%
Assume that, for each maturity, there is a zero-coupon bond
traded in the market. These zeros pay $1,000 at their respective
maturity.
a. Is the term structure positive, inverted, or flat?
b. What is the forward rate from t=1 to t=2?
c. Suppose that the investor is expecting to receive $1 million
at t=1. This...
9. The market prices of zero coupon bonds are as follows Time to maturi Price 97.08 93.35 88.90 83.86 4 (a) Compute the one-year forward rate and the two-year forward rate one-year from now [i.e. compute fi2 and fi 31. Express them in annualized form. 4% and 4.5% (b) Suppose you can enter a contract to borrow or lend at a one-year forward rate [ h+2 ] of 4.5%. You can take long or short positions in any of the...
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