1) $100 par of a 0.5-year 8%-coupon bond has a price of $101.
$100 par of a 1-year 10%-coupon bond has a price of $104.
a) What is the price of $1 par of a 0.5-year zero?
b) What is the price of $1 par of a 1-year zero?
c) Suppose $100 of a 1-year 6%-coupon bond has a price of $99. Is there an arbitrage opportunity? If so, how?
d) What is the 1-year par rate, i.e., what coupon rate would make the price of a 1-year coupon bond equal to par?
e) What is the 0.5-year zero rate?
f) What is the 1-year zero rate?
g) Considering the shape of the yield curve, should the yield on the 1-year 10%-coupon bond be higher or lower than the 1-year par rate?

Answer rating: 100% (QA)

Answer a 1 par of a 05year zero has a price of 9950 b 1 par of a 1year zero has a price of 98 c Yes ... View the full answer