Question

4. The following table gives prices of bonds Bond principal Annual coupon Bond Price 100 100 100 100 Time to maturity years 1.00 2.00 3.00 4.00 0.0 6.2 7.0 8.0 98 95 101 104 a) Calculate zero rates for all maturities b) Calculate forward rates

Please explain/show work, do not use excel (hand written answer), full steps

0 0
Add a comment Improve this question Transcribed image text
Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

I HAVE WRITTEN IN EXCEL. BUT NO EXCEL FORMULA IS USED. YOU CAN CHECK IT OUT. THANK YOU

Home nert Page Layout Formulas Data Review View dd-Ins Cut aCopy Σ AutoSum Wrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard CV163 CL Font Alignment Number Cells CM CN CO CP ca CR CS CT 2.0408% CU CV cW CX CY 146 147 148 149 150 151 152 less 153 154 155 156 157 158 159 160 less 161 162 163 164 14 | YIELD SPOT / Sheet2 1 year zero coupon rate (100/98)-1- 2 year zero coupon rate we have 2 year coupon bond paying 6.2% coupon 95.00 pv of regular coupon bond pv of coupon of 1 year 6.2/(1+0.020408) price of 2 year zero coupon bond 6.08 coupon discounted by zero cupon rate 2.0408% $ 88.92 so the 2 year zero coupon rate-(fv/pv)(1/2) 1- (100+6.2)/88.92)(1/2)-1- 9.2855% 3 year zero coupon rate pv of regular coupon bond pv of coupon of 2 years 7/1.020408 7/(1.0928552) price of 3 year zero coupon bond 101.00 12.721 $ 88.28 so the 3 year zero coupon rate-(fv/pv)(1/3) 1- ((100+7)/88.28)A(1/3)-1- 6.6204% . AFN . BANKING . NO TE BIDDING, UNDERWRITING EUACA NPM LIFE . LP, İp, MRP, INFLATION YIELD WARRAN Trefund bond CLEAN INVOICE PRICE 01:56 24-01-2019Home nert Page Layout Formulas Data Review View dd-Ins Cut aCopy Σ AutoSum ー E ゴWrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard CV182 CL Font Alignment Number Cells Edting CM CN CO CP ca CR CS CT CU CV cW CX CY 164 165 166 167 168 less pv of coupon of 3 years 8/1.020408 8/(1.092855 2) 8/(1+0.066204A3)- 169 170 4 year zero coupon rate pv of regular coupon bond price of 4 year zero coupon bond- so the 4 year zero coupon rate (fv/pv)(1/4) -1- ((100+8)/81.46)A(1/3)-1- 104.00 22.536 $81.46 7.3050% 172 173 174 175 176 YEAR ZERO RATES 1 2.0408% 2 9.2855% 3 6.6204% 4 7.3050% FORWARD RATES 2.04% (1+1R2)^2/(1+1R1)^1-1-((1+0.092855)^2/(1+0.020408)^1)-1-17.04% (1+1R3)^3/(1+1R2)^2-1-((1+0.057781)^3/(1+0.092855)^2)-1-1.48% (1+1R4)^4/(1+1R3)^3-1-((1+0.073050)^4/(1+0.066204)^3)-1-9.39% 3f1- 178 179 180 181 182 YIELD SPOT Sheet2 AFN BANKING NOTE BIDDING, UNDERWRITING EUAC AW PM LIFE LP I MR INFLATION YIELD WARRANT fund bond CLEAN INVOICE PRICE LI 01:57 24-01-2019

Add a comment
Know the answer?
Add Answer to:
Please explain/show work, do not use excel (hand written answer), full steps 4. The following table...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT