The table below contains prices, coupons and the time to maturity for three bonds. The bonds...

 

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The table below contains prices, coupons and the time to maturity for three bonds. The bonds pay coupons annually and have a face value of $100. A 4-year zero coupon bond is also on issue in the market and has a face value of $100 and a price of $79.209. Please use annual compounding in your calculations and 3 decimal places in your workings if not using Excel. Years to Maturity 1 2 3 Annual Coupon 4.5% 7.0% 3.0% Price $98.585 $101.833 $91.981 a) What is the price of a 4-year coupon bond paying annual coupons of 6% with a face value of $100? (10 marks) b) What do you expect to happen to the quoted price of the 4-year coupon bond as it approaches maturity, assuming that interest rates do not change? (3 marks) c) Under expectations theory, what is the expected one-year spot rate in year 3? (2 marks) The table below contains prices, coupons and the time to maturity for three bonds. The bonds pay coupons annually and have a face value of $100. A 4-year zero coupon bond is also on issue in the market and has a face value of $100 and a price of $79.209. Please use annual compounding in your calculations and 3 decimal places in your workings if not using Excel. Years to Maturity 1 2 3 Annual Coupon 4.5% 7.0% 3.0% Price $98.585 $101.833 $91.981 a) What is the price of a 4-year coupon bond paying annual coupons of 6% with a face value of $100? (10 marks) b) What do you expect to happen to the quoted price of the 4-year coupon bond as it approaches maturity, assuming that interest rates do not change? (3 marks) c) Under expectations theory, what is the expected one-year spot rate in year 3? (2 marks)

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Answer Bond Pricing and Spot Rate Calculations a Price of a 4Year 6 Coupon Bond We can use the bond valuation formula to calculate the price of the 4y... View the full answer