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Consider a two-year risk-free discount (zero coupon) bond with $1,000 par value. In other words, this...
Bond prices in the absence of arbitrage Consider a market with two risk-free zero-coupon bonds, A and B. Their respective maturities are 1 and 2 years, and their market prices are 97.0874 and 95.1814 (expressed as percentage of the face value). (a) Calculate the discount rates rt for t = 1 and 2 years. (b) Suppose that a two-year bond C, with a coupon rate of 2.75%, also trades in the market. What should be its price if there is...
The YTM on a 6-month $20 par value zero-coupon bond is 18%, and the YTM on a 1-year $20 par value zero-coupon bond is 20%. These YTMs are semiannual BEYs. What would be the arbitrage-free price of a 1-year bond with coupon rate of 20% (semiannual payments) and par value of $1000? Assume that this bond is issued by the same company as the zero-coupon bonds.
A 20-year $100-par-value bond with a coupon rate of 10% is selling at par. The bond is deliverable for a futures contract that settles in three months. The annualized 3-month interest rate is 6%. At this rate funds can be borrowed to purchase the underlying bond in a cash-and-carry strategy. If the futures is priced at $101, is there any arbitrage opportunity and why? No, the futures is priced fairly. Yes, the futures is overpriced based on the cash-and-carry strategy....
Assume that the market risk-free interest rate is 12.00%. Assume that a zero-coupon risk free bond, with maturity 2 years and 100 face value, is trading at 75. Which of the following is true? (a) By lending today for two years at the market rate, and short-selling the bond, you have an arbitrage. (b) By borrowing today for two years at the market rate, and buying the bond, you have an arbitrage. (c) By buying the bond today and investing...
Bond Valuation A 20-year, 8% semiannual coupon bond with a par value of $1,000 sells for $1,100. (Assume that the bond has just been issued.) 20 Basic Input Data: Years to maturity: Periods per year: Periods to maturity: Coupon rate: Par value: Periodic payment: Current price 8% $1,000 $1,100 c. What would be the price of a zero coupon bond if the face value of the bond is $1,000 in 3 years and if the yield to maturity of similary...
12. The current price of a 1-year zero-coupon Treasury bond is $975 (with $1,000 par value). If the annual forward rate between year 1 and 2 implied by the zero yield curve is equal to 4.5%, what is the current price of a 2-year zero-coupon Treasury bond (with $1,000 par value)? (a) $950.63 (b) $933.01 (c) $924.56 (d) $1,000.00
Help with finance question please.
7. Below is a list of prices for $1,000 par zero-coupon bonds of various maturities. Maturity (Years) Bond AWNA Price $930 $850 $770 $700 1.4 a. Compute the zero-coupon rates for years 1, 2, 3 and 4. b. Consider an 8% coupon $1,000 par bond (denoted by B) paying annual coupons and expiring in 4 years. Compute the no-arbitrage price of the bond and its yield-to-maturity. c. If the expectations hypothesis holds, what is your...
Assume the zero-coupon yields on default-free securities are as summarized in the following table:Maturity1 year2 years3 years4 years5 yearsZero-Coupon Yields3.0%3.6%3.8%4.1%4.3%What is the price today of a two-year, default-free security with a face value of $1,000 and an annual coupon rate of 5%? Does this bond trade at a discount, at par, or at a premium? Note: Assume annual compounding.
What is the yield on a zero-coupon bond with a par value of $1,000, a price of $775 and a maturity of 6 years? Assume semi annual compounding.
Assume the zero-coupon yields on default-free securities are as summarized in the following table: Maturity Zero-Coupon Yields 1 year 4.4% 2 years 5.0% 3 years 5.4% 4 years 5.7% 5 years 5.9% What is the price today of a two-year, default-free security with a face value of $1,000 and an annual coupon rate of 8%? Does this bond trade at a discount, at par, or at a premium? Note: Assume annual compounding.