A risk-free 1-year 6% coupon bond has YTM=9% while a risk-free 1-year 16% coupon bond has YTM=9.1%.

It is important to keep at least 7 decimal digits for all calculations:

a) Find the bonds' prices

b) Find 1-year spot rate 

c) Find 6-month spot rate

d) Consider a 1-year bond that currently sells at par. Assuming interest rates are not random, do you think this bond will be selling at a discount, premium, or at par 6 months from now? No calculations are required, but, if you cannot answer this question without calculations, you can find the coupon rate for this bond and compute its price 6 month from now.

e) Find the price of a 1-year 10% coupon bond

 

Please note: All interest rates are annual interest rates with semi-annual compounding. All coupon rates are annual rates paid semi-annually. All bonds have $100 face values.

Answer rating: 100% (QA)

1 Bond A aMaturityn 1 year b CouponC 6 cCompoundingk semiannual2 dYTMi9 ePar valueP 100 2 Bond B aMaturityn 1 year b CouponC16 cCompoundingk semiannua... View the full answer