The following are the yields to maturity on Canada strip bonds with various years to maturity. Years

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The following are the yields to maturity on Canada strip bonds with various years to maturity.

Years to Maturity Yield to Maturity(%)

1...................................................................1.26

2...................................................................2.00

3..................................................................2.47

4..................................................................2.79

5..................................................................3.02

a. Calculate the forward rate for each period.

b. Calculate the price today of the following Canada bonds:

i. 2-year $1,000 par value, 5% annual coupon, 2-year bond

ii. 5-year $1,000 par value, 5% annual coupon, 5-year bond

iii. 5-year $1,000 par value, 10% annual coupon, 5·year bond

c. Calculate the yields to maturity on each of the bonds in part (b).

d. Why is the yield to maturity on the 10% bond less than the yield on the 5%, 5·year bond?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Related Book For  answer-question

Fundamentals of Corporate Finance

ISBN: 978-1259024962

6th Canadian edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim

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