Consider the following prices of zero-coupon bonds with a $100 par: Maturity One year Two years...

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Consider the following prices of zero-coupon bonds with a $100 par: Maturity One year Two years Three years Price of zero-coupon bond with a $100 par $95.24 $87.34 $83.96 In addition to the zero-coupon bonds above, investors may purchase a three-year coupon bond making annual coupon payments of $10 with a par value of $100. a. What is the price the three-year coupon bond today? (4 marks) b. What is the expected price of the coupon bond in part a) above in one year - right after the first annual coupon payment - under the pure expectations theory of term structure? (7 marks) c. Calculate the expected one-year realized compound yield of an investment in the three-year coupon bond under the pure expectations theory of term structure based on your answers in parts a) and b) above. Consider the following prices of zero-coupon bonds with a $100 par: Maturity One year Two years Three years Price of zero-coupon bond with a $100 par $95.24 $87.34 $83.96 In addition to the zero-coupon bonds above, investors may purchase a three-year coupon bond making annual coupon payments of $10 with a par value of $100. a. What is the price the three-year coupon bond today? (4 marks) b. What is the expected price of the coupon bond in part a) above in one year - right after the first annual coupon payment - under the pure expectations theory of term structure? (7 marks) c. Calculate the expected one-year realized compound yield of an investment in the three-year coupon bond under the pure expectations theory of term structure based on your answers in parts a) and b) above.

Answer rating: 100% (QA)

To calculate the price of the threeyear coupon bond today we need to discount the future cash flows coupon payments and the par value at the correspon... View the full answer