CFO of AAA company estimates the following spot interest rates on Treasure Securities: r 1 = 4
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Question:
CFO of AAA company estimates the following spot interest rates on Treasure Securities: r 1 = 4 % , r 2 = 5 % , r 3 = 5 . 6 % . Company s bonds have an 1 1 % coupon rate interest is payable annually, and they mature in exactly 3 years. The par value of the bond is $ 1 0 0 0 .
a Assuming the bond to be riskfree, estimate the present value of the bond.
marks
b Calculate the present value of the following Treasury issues year bond, years
bond. Determine the yield to maturity of each bond, showing the logic of your computation without
precise calculation.
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c Explain the difference between yield to maturity you observe.
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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