6. Spot rates of interest for zero-coupon Government of Canada bonds are observed for different terms...
6. Spot rates of interest for zero-coupon Government of Canada bonds are observed for different terms to maturity as follows:
1-year spot rate 4%
2-year spot rate 4.5%
3-year spot rate 5%
A 3-year bond has a face value of $1,000 and a coupon rate of 7%. It pays coupons annually.
What is its value today? (3 marks)
Homework Answers
Value of the bond today is sum of PV of all coupons ans Face value discounted with respective spot rates.
Coupon of the bond = 7% of 1000 = $70
So, price of the bond today = 70/1.04 + 70/1.045^2 + 1070/1.05^3 = $1055.72
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6. Spot rates of interest for zero-coupon Government of Canada
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