Problem E,

You are facing the following four Bonds which pay annual coupons:

Bonds A B C D

Face ($) 1000 1000 1000 1000

Present Price ($) 1009.3458 1008.9778 993.5862 967.6028

Annual Coupon ($) 80 80 80 80

Maturity 1 year 2 years 3 years 4 years

Annual Yield Rate (%) 7.00 7.50 ??? 9.00

The annual Yield Rate (%) for bond C is:

a. 8.25

b. 7.75

c. 9.00

d. 8.75

The Forward Rate of bond B for the second year is (%)

a. 8.00234

b. 7.50000

c. 7.70234

d. 8.30234

The discounted value of the face value of bond B at the end of the first year (beginning of the second year) should be

a. 927.2326

b. 923.9059

c. 925.9059

d. 930.2326