A three year bond with coupon rate 4.25%, face value $10,000 has a yield to maturity...
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![A three year bond with coupon rate 4.25%, face value $10,000 has a yield to maturity of 5.85%. Assume that](https://dsd5zvtm8ll6.cloudfront.net/questions/2023/12/658034bd957eb_1702947727947.jpg)
![b. Assume that the prices of 1 year zero coupon bonds and 2 year zero coupon bonds with face $100 are 96.22](https://dsd5zvtm8ll6.cloudfront.net/questions/2023/12/658034c4c8a66_1702947735152.jpg)
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A three year bond with coupon rate 4.25%, face value $10,000 has a yield to maturity of 5.85%. Assume that coupons are paid once per year and that the next coupon will be paid in exactly one year. a. What is the bond price? 2 marks b. Assume that the prices of 1 year zero coupon bonds and 2 year zero coupon bonds with face $100 are 96.22 and 91.85 respectively. Assuming that there is no arbitrage, what is the price of a 3 year zero with the same face value? What are the 1, 2 and 3 year spot rate? 3 marks A three year bond with coupon rate 4.25%, face value $10,000 has a yield to maturity of 5.85%. Assume that coupons are paid once per year and that the next coupon will be paid in exactly one year. a. What is the bond price? 2 marks b. Assume that the prices of 1 year zero coupon bonds and 2 year zero coupon bonds with face $100 are 96.22 and 91.85 respectively. Assuming that there is no arbitrage, what is the price of a 3 year zero with the same face value? What are the 1, 2 and 3 year spot rate? 3 marks
Expert Answer:
Answer rating: 100% (QA)
SOLUTION a To calculate the bond price we need to determine the present value of the bonds cash flows The coupon payment is 10000 425 425 per year for three years The face value of the bond is 10000 U... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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