Given the following zero-coupon yield curve, what would a rational investor pay for an 8% coupon, $1,000 par security p...

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Given the following zero-coupon yield curve, what would a rational investor pay for an 8% coupon, $1,000 par security paying Spot rate 00 ori of 2 Rate 9% 8% 6.50% 6% 4% or3 015 These rates are annualized rates for the period now (t=0) to the right s

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Answer 1

Answer #1

Price of the bond=8%*1000/1.09+8%*1000/1.08^2+8%*1000/1.065^3+8%*1000/1.06^4+8%*1000/1.04^5+1000/1.04^5=1159.25830

YTM Using financial calculator
PMT=8%*1000=80
PV=-1159.25830
FV=1000
N=5
CPT I/Y=4.384%

Hence, YTM=4.384%

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Answer 2

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