Compute the price of a zero-coupon bond with a redemption value of USD 1,000.00 due in...
- Compute the price of a zero-coupon bond with a redemption value of USD 1,000.00 due in 4 years’ time if the four –year spot rate is 7%.
Homework Answers
Price of Zero Coupon Bond = Par Value/(1 + r)n
Here,
Par Value = $1,000
r = 0.07
n = 4 years
Price of Zero Coupon Bond = 1,000/(1.07)4
Price of Zero Coupon Bond = $762.90
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Compute the price of a zero-coupon bond with a redemption value
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2. * A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years' time. It is currently selling for £95.25. (a) Without making any calculations can you determine what is greater between the redemption yield and the interest yield? Why? (b) Compute the redemption yield (annual effective)?
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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
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)
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