Bond A is a two year zero coupon bond with par value of $1000 and price...
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Bond A is a two year zero coupon bond with par value of $1000 and price of $950. Bond B is a three year 7% coupon bond with par value of $1000 and price of $1000. 1.1) Compute the yield to maturity of each. Is the yield curve upward or downward sloping? (Points: 10) 1.11) Compute the implied forward rate. (Points: 5) 1.III) Compute the duration of each. (Points: 5) 1.IV) Compute the convexity of each. (Points: 5) Show that a bond sells at par if and only if the coupon rate equals the yield. Note that you have to show each direction separately: the IF statement and the ONLY IF statement. Hint: A good start point is bond pricing equation P = √ [1 − ( 1 + √²] + · Par (1+r) C Bond A is a two year zero coupon bond with par value of $1000 and price of $950. Bond B is a three year 7% coupon bond with par value of $1000 and price of $1000. 1.1) Compute the yield to maturity of each. Is the yield curve upward or downward sloping? (Points: 10) 1.11) Compute the implied forward rate. (Points: 5) 1.III) Compute the duration of each. (Points: 5) 1.IV) Compute the convexity of each. (Points: 5) Show that a bond sells at par if and only if the coupon rate equals the yield. Note that you have to show each direction separately: the IF statement and the ONLY IF statement. Hint: A good start point is bond pricing equation P = √ [1 − ( 1 + √²] + · Par (1+r) C
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Answer 1 2 year rate10009501212597835 3 year ytmcoupon rate7 as pricep... View the full answer
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