Suppose prices of zero-coupon bond with $100 face value and various maturities are as follows Price...

 

Transcribed Image Text:

Suppose prices of zero-coupon bond with $100 face value and various maturities are as follows Price Horizon, T 1 Quarter 98.34 4 Months 97.25 2 years 10 years 90.40 49.38 (a) Calculate the risk-free rate of returns for the above four bonds. (b) Calculate the effective annual rates for the above four bonds. Which bond has the highest EAR? (c) Calculate the annualized percentage rate for the above four bonds, if appropriate (Hint: Not all four bonds are appropriate to calculate the APR). If not appropriate, please explain the reason. Suppose prices of zero-coupon bond with $100 face value and various maturities are as follows Price Horizon, T 1 Quarter 98.34 4 Months 97.25 2 years 10 years 90.40 49.38 (a) Calculate the risk-free rate of returns for the above four bonds. (b) Calculate the effective annual rates for the above four bonds. Which bond has the highest EAR? (c) Calculate the annualized percentage rate for the above four bonds, if appropriate (Hint: Not all four bonds are appropriate to calculate the APR). If not appropriate, please explain the reason.

Answer rating: 100% (QA)

a Rate of return 100 Price 1 For Bond 1 100 9834 1 001688 or 1688 For Bond 2 1... View the full answer