A five year bond with a 5% coupon is sold to yield 5%. you look at the yield curve and observe th...

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A five year bond with a 5% coupon is sold to yield 5%. you look at the yield curve and observe th...

A five year bond with a 5% coupon is sold to yield 5%. you look at the yield curve and observe the following

Year: 1 2 3 4 5

YTM: 1% 2% 3% 4% 5%

Calculate the two possible prices for the bond.

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Answer 1

Answer #1

ASSUMING FACE OR PAR VALUE OF 1000

1.
Price of the bond=1000 as coupon rate is same as yield

2.
Price of the bond=50/1.01+50/1.02^2+50/1.03^3+50/1.04^4+1050/1.05^5=1008.763157

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Answer 2

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