The following is a list of current prices for one-year, two-year, and three-year zero-coupon bonds, all...

 

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The following is a list of current prices for one-year, two-year, and three-year zero-coupon bonds, all with a par value of $1,000 Maturity (Years) 1 Prices of Zero-coupon Bond ($) 952.38 890.00 816.30 2 3 In addition, Bond Z is a four-year 10% annual coupon bond with a par value of $1,000 and is priced at $1,100.00 today. Assume that the expectations theory of term structure of interest rates holds. a) Calculate the Macaulay duration of Bond Z, calculating present values using the yield to maturity of Bond Z. (4 marks) b) A one-year zero-coupon bond with a par value of $1,000 is scheduled to be issued in two years (at the end of Year 2). Do you expect the price to be higher or lower than $952.38? Explain. (2 marks) c) Calculate the expected price of Bond Z one year from now right after the first coupon payment (at the end of Year 1). (6 marks) The following is a list of current prices for one-year, two-year, and three-year zero-coupon bonds, all with a par value of $1,000 Maturity (Years) 1 Prices of Zero-coupon Bond ($) 952.38 890.00 816.30 2 3 In addition, Bond Z is a four-year 10% annual coupon bond with a par value of $1,000 and is priced at $1,100.00 today. Assume that the expectations theory of term structure of interest rates holds. a) Calculate the Macaulay duration of Bond Z, calculating present values using the yield to maturity of Bond Z. (4 marks) b) A one-year zero-coupon bond with a par value of $1,000 is scheduled to be issued in two years (at the end of Year 2). Do you expect the price to be higher or lower than $952.38? Explain. (2 marks) c) Calculate the expected price of Bond Z one year from now right after the first coupon payment (at the end of Year 1). (6 marks)