You are given the following information about zero-coupon bonds with different maturities. All of these bonds...
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You are given the following information about zero-coupon bonds with different maturities. All of these bonds have $1,000 face value: Bond Maturity Bond A 0.5 years Bond B 1 year Bond C 1.5 years Price 943.4 873.44 772.18 a) Calculate the yield-to-maturity for each bond. Bond A Bond B Bond C b) You own a fourth bond, trading in the same market and with identical credit risk as the zero-coupon bonds presented in part a). This bond has cash flows of $1,000 in 6 months, $1,000 in 1 year and $1,000 in 18 months. In equilibrium, what should the price of this bond be? c) What is the yield-to-maturity of the bond in part b? d) Briefly discuss the reasons for differences between this yield-to-maturity, and the yield-to-maturity of the other eighteen-month bond as you calculated it in part a3) You are given the following information about zero-coupon bonds with different maturities. All of these bonds have $1,000 face value: Bond Maturity Bond A 0.5 years Bond B 1 year Bond C 1.5 years Price 943.4 873.44 772.18 a) Calculate the yield-to-maturity for each bond. Bond A Bond B Bond C b) You own a fourth bond, trading in the same market and with identical credit risk as the zero-coupon bonds presented in part a). This bond has cash flows of $1,000 in 6 months, $1,000 in 1 year and $1,000 in 18 months. In equilibrium, what should the price of this bond be? c) What is the yield-to-maturity of the bond in part b? d) Briefly discuss the reasons for differences between this yield-to-maturity, and the yield-to-maturity of the other eighteen-month bond as you calculated it in part a3)
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Answer rating: 100% (QA)
a To calculate the yieldtomaturity YTM for each bond we can use the formula YTM Face Value Price1 Maturity 1 Lets calculate the YTM for each bond Bond ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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