1.
sn=(Face value/Price)^(1/n)-1
s1=(1000/931)^(1/1)-1=7.4114%
s3=(1000/785)^(1/3)-1=8.4035%
2.
=((1+s3)^3/(1+s1)^1)^(1/2)-1
=((1+8.4035%)^3/(1+7.4114%)^1)^(1/2)-1
=8.9030%
Exercise 2. Suppose that the no-arbitrage price of £1,000 worth of zero-coupon bonds with ma- turities 1 and 3 years ar...
Consider the following three zero-coupon (discount) bonds: Bond Face Value Time to Maturity Market Price 1 $1,000 One year $924.64 2 $1,000 Two years $841.53 3 $1,000 Three years $744.59 a) Calculate the one-, two-, and three-year spot rates. b) Calculate the forward rate over the second year and the forward rate over the third year.
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...
Exercise 6. Suppose that a broker quotes the price of unit zero-coupon bonds, with maturity times of (0.5, 1.0, 1.5, 2.0) years, to be respectively (0.95, 0.92, 0.86,0.84). Calculate the no-arbitrage price of a 2-year bond with face-value £500,000, semi-annual coupons at rate 4% per annum, and no redemption payment.
Suppose that you observe the following prices of three zero-coupon bonds issued by the government: YTM (spot rate) Price 985.22 1-year zero-coupon bond X 2-year zero-coupon bond Y 3-year zero-coupon bond Z Face value 1,000 1,000 1,000 P2 4% 901.94 Questions: A. (4 pts) Draw a yield curve based on the above three zero-coupon bonds. Comment on the shape. B. (6 pts) Calculate the implied 1-year forward interest rate, two years from now (i.e. f2.a)
5. The following are current prices of zero coupon bonds: (assume par values are all $1,000) Maturity (years) | Price 943.40$ 881.60$ 824.10$ 767.77$ 3 4 What is the YTM of the 3-year zero-coupon bond? a. b. What is the zero yield curve out to 4 years? (i.e. spot rates for 1, 2, 3 and 4 years) What is the 1-year forward rate in the third year (i.e. in two years' time)? C. d. According to the Expectations Hypothesis, what...
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest to? (10 points) b. The four-year spot rate is not given above; however, the forward price for a one-year zero-coupon bond beginning in three years is known to be 0.8400. The price today of a four-year zero-coupon bond is closest to? (5 points)
14, A one-year zero coupon...
Consider the following three zero-coupon (discount) bonds: Face Value Market Pricee Time to Maturity Bond $924.64 One year $1,000 1e $841.53 Two years $1,000 2e $744.59 Three years $1,000 3 a) Calculate the one-, two-, and three-year spot rates. (3 marks) b) Calculate the forward rate over the second year and the forward rate over the third year. (2 marks)
The following information is for zero-coupon bonds with $1,000 maturity value. Maturity (years) Bond Price ($) 970 940 910 a) Derive the yield curve that is consistent with the above data. b) Assume the liquidity preference hypothesis holds and the liquidity premium for each period is constant at 1%. What is the “true” three-year spot rate?
Q. consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity YTM A 1 3% B 2 4% C 3 5% D 4 6% a. What is the expected 1-year interest rate in the 3rd year? b. What will be the price of the 2-year zero-coupon bond after 2 years? c. Suppose, next year, you consider buying 3-year zero-coupon bond and holding it for 2 years. What will be the realized compound return?
3. You have a zero coupon bond that pays $100 in two more years. Its price is $69.44. You also have a 5% coupon bond with a principal of $100. The spot rate for 1 year is r = 5%. (a) What is the spot rate for 2 years, ra? (b) What is the price of the coupon bond? (c) Make a graph to show the term structure of interest rates. 4. Compute the yield to maturity for the two...