You observe the following two financial securities in the market: Regular Annuity: Maturity = 5 years,...
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You observe the following two financial securities in the market: Regular Annuity: Maturity = 5 years, Annual payments in arrears (at the end of a year) = $240.000, Current price = $1,079.765. Regular coupon bond: Maturity = 5 years, Face value = $1,000.000, Coupon rate = 6.000%, Current price = $1,174.779. Then, as per the no-arbitrage principle, what should be the fundamental (theoretical) price of a five-year zero coupon bond of face value $100? In other words, what is the current price value of the following financial security? • Zero-coupon bond: Maturity = 5 years, Face value = $100.000, Current price = $X. (Round-off to at least 4 decimal places.) ● ● You observe the following two financial securities in the market: Regular Annuity: Maturity = 5 years, Annual payments in arrears (at the end of a year) = $240.000, Current price = $1,079.765. Regular coupon bond: Maturity = 5 years, Face value = $1,000.000, Coupon rate = 6.000%, Current price = $1,174.779. Then, as per the no-arbitrage principle, what should be the fundamental (theoretical) price of a five-year zero coupon bond of face value $100? In other words, what is the current price value of the following financial security? • Zero-coupon bond: Maturity = 5 years, Face value = $100.000, Current price = $X. (Round-off to at least 4 decimal places.) ● ●
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SOLUTION To determine the fundamental theoretical price of a fiveyear zerocoupon bond we can use the concept of noarbitrage pricing According to the noarbitrage principle the present value of the cash ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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