The price of the three-year US Government coupon bond with 5% coupon rate is $1,115.50. This...

 

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The price of the three-year US Government coupon bond with 5% coupon rate is $1,115.50. This bond pays coupons annually. The price of the one-year Treasury zero-coupon bond is $998. The price of the two-year Treasury zero-coupon bond is $995. The price of the three-year Treasury zero-coupon bond is $990. All par values are $1,000. Is this this coupon bond priced correctly? If not, how can you exploit this mispricing? The time line with the Project A's cash flows is given below: t=0 2 3 4 -$1,000.00 $200.00 $400.00 $600.00 $800.00 The rates on US Treasury zero-coupon bonds are: Time to Maturity Rate 1 2% 2 2.22% 2.50% 3% ~♡ 3 4 What is the Net Present Value of Project A if it has the same risk as US Treasury bonds? The price of the three-year US Government coupon bond with 5% coupon rate is $1,115.50. This bond pays coupons annually. The price of the one-year Treasury zero-coupon bond is $998. The price of the two-year Treasury zero-coupon bond is $995. The price of the three-year Treasury zero-coupon bond is $990. All par values are $1,000. Is this this coupon bond priced correctly? If not, how can you exploit this mispricing? The time line with the Project A's cash flows is given below: t=0 2 3 4 -$1,000.00 $200.00 $400.00 $600.00 $800.00 The rates on US Treasury zero-coupon bonds are: Time to Maturity Rate 1 2% 2 2.22% 2.50% 3% ~♡ 3 4 What is the Net Present Value of Project A if it has the same risk as US Treasury bonds?

Answer rating: 100% (QA)

To calculate the present value of the coupon bond we need to discount the future cash flows using th... View the full answer