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?
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] + ·