Question

a) The price of a 4-year zero coupon government bond is 79.81. What is the yield to maturity (effective annual yield) on the 4-year bond? b) The price of a 3-year zero coupon government bond is 85.16. What is the yield to maturity (effective annual yield) on the 3-year bond? The prices of 1, 2, 3, and 4-year zero coupon government bonds are 95.42, 90.36, 85.16, and 79.81, respectively. What is the implied 2-year forward rate between years 2 and 4? d) What is the par coupon on a 4-year coupon bond selling at par?

Answer 1

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L e W . * $ 9 w ? v L 1 06-27 ENG 21-03-202022 KS115 x V KM KN KQ KO K P PRICE OF 4 YEAR ZERO COUPON BOND = PRICE OF 4 YEAR ZERO COUPON BOND = KR (100/79.81)^(1/4) - 1 5.80% (ROUNDED TO 2 DECIMALS] PRICE OF 3 YEAR ZERO COUPON BOND = PRICE OF 3 YEAR ZERO COUPON BOND = (100/85.16)^(1/3) - 1 5.50% [ROUNDED TO 2 DECIMALS] maturity Nm price 95.42 90.36 85.16 79.81 YTM 4.80% [(100/95.42)^(1/1) - 1 5.20% (100/90.36)(1/2) - 1 5.50% [(100/85.16)^(1/3) - 1 5.80% (100/79.81)^(1/4) - 1 106 107 PAR VALUE OF BOND = COUPONS X PVIFA @r%, n years + PAR VALUE X PVIF r%, n years As rates are different each year, we can not use PVIFA for coupons, instead we use PVIF 111 112 113 114 115 100 = c/(1+0.0480) + C/(1+0.0520)^2 + C/(1+0.0550)^3 + C/(1+0.0580)^4 + 100/(1+0.0580)^4 100 = C (3.507496) + 79.81 20.19 = C (3.507496) C = 5.7562432 COUPON RATE = 5.756% 5.76% 116 117 YIELD SPOT AFN BANKING NOTE Sheet2 S1 S3 CLEAN PRICE 510 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARR... +