A 1-year T-note, face value $100, paying a coupon rate of 8% p.a., trading at a yield to maturity of 6% p.a.

 

(a) Explain briefly why relying on this information alone, there is no way one can figure out the price of a one-year zero coupon bond with a face value of $100.

(b) In addition to the above information, it is given that a 0.5 year T-note, paying a coupon rate of 4% p.a., is trading at par. What is the price of a one-year zero coupon bond with a face value of $100?

(c) Based on your work in part (b): What is the price of a one-year T-note, with a face value of $100, paying a coupon rate of 4% p.a.?

Answer rating: 100% (QA)

a The price of a zerocoupon bond cannot be determined solely from information about a coupon bond an... View the full answer