Suppose there is an 8% coupon, 3-yr. bond that pays interest annually. The spot rate is...
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Suppose there is an 8% coupon, 3-yr. bond that pays interest annually. The spot rate is 6% and is the same for all coupons and the face value. (a) What is the price of this bond? What is the current yield? Is it a premium bond or discount bond? (b) One year later, the bond is now only 2 years to maturity. Assuming the spot rate unchanged, what is the bond price now? Do you observe "pull to par"? (c) Now suppose the spot rate is 10%. What is the price of the a 3-year bond with 8% coupon? What is the current yield? Is it a premium bond or discount bond? (d) Following (c), one year later, the bond is now only 2 years to maturity. Assuming the spot rate unchanged, what is the bond price now? Do you observe "pull to par"? Suppose there is an 8% coupon, 3-yr. bond that pays interest annually. The spot rate is 6% and is the same for all coupons and the face value. (a) What is the price of this bond? What is the current yield? Is it a premium bond or discount bond? (b) One year later, the bond is now only 2 years to maturity. Assuming the spot rate unchanged, what is the bond price now? Do you observe "pull to par"? (c) Now suppose the spot rate is 10%. What is the price of the a 3-year bond with 8% coupon? What is the current yield? Is it a premium bond or discount bond? (d) Following (c), one year later, the bond is now only 2 years to maturity. Assuming the spot rate unchanged, what is the bond price now? Do you observe "pull to par"?
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Answer rating: 100% (QA)
a Face value 1000 Coupon rate 8 Coupon payments 80 annually Maturity ... View the full answer
Related Book For
Microeconomics
ISBN: 978-0321866349
14th canadian Edition
Authors: Christopher T.S. Ragan, Richard G Lipsey
Posted Date:
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