We have a 1-year-maturity zero coupon bond with a price of 97.087 and the face value...
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We have a 1-year-maturity zero coupon bond with a price of 97.087 and the face value of 100. We have a plain vanilla coupon bond maturing in 2 years with a price of 103.349, an annual coupon of 5 and a face value of 100. Finally, we also have a second plain vanilla coupon bond maturing in 3 years with a price of 106.604, an annual coupon of 6 and a face value of 100. 1) What is the 1-year spot rate based on these terms? 2) What is the forward rate for the 2nd year? 3) What is the forward rate for the 3rd year? We have a 1-year-maturity zero coupon bond with a price of 97.087 and the face value of 100. We have a plain vanilla coupon bond maturing in 2 years with a price of 103.349, an annual coupon of 5 and a face value of 100. Finally, we also have a second plain vanilla coupon bond maturing in 3 years with a price of 106.604, an annual coupon of 6 and a face value of 100. 1) What is the 1-year spot rate based on these terms? 2) What is the forward rate for the 2nd year? 3) What is the forward rate for the 3rd year?
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Answer rating: 100% (QA)
To calculate spot rates and forward rates we can use the bond pricing formula The formula for the price of a bond is given by Price Coupon 1 Spot Rate1 Coupon 1 Spot Rate2 Coupon Face Value 1 Spot Rat... View the full answer
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