Question

Prices of zero-coupon bonds reveal the following pattern of forward rates: |

Year | Forward Rate |

1 | 6% |

2 | 7 |

3 | 8 |

In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $60 with par value $1,000. |

a. |
What is the price of the coupon bond? |

Price | $ |

b. |
What is the yield to maturity of the coupon bond? |

Yield to maturity | % |

c. |
Under the expectations hypothesis, what is the expected realized
compound yield of the coupon bond? |

Realized compound yield | % |

d. |
If you forecast that the yield curve in 1 year will be flat at
8.0%, what is your forecast for the expected rate of return on the
coupon bond for the 1-year holding period? |

Holding period return |
% |

Answer #1

**a**.

Cash Flows | 60 | 60 | 1060 |

Forward Rate | 6% | 7% | 8% |

Present value | 56.60377 | 52.90072 | 865.3513 |

Price | $ 974.86 |

**b.**

YTM=[ C+((F-P)/n)] / [(F+P)/2] | |||

Where, | |||

C= | Coupon Rate | ||

F= | Face Value | ||

P= | Price | ||

Ytm= | 6.93% |

**c.**

Expected Compounded Yield= | (1.06x1.07x1.08)-1 | ||

= 22.49% |

**d.**

Expected Rate of return by holding bond for 1 year= (Price of bond at end of 1st year - Price of bond today + Coupon) / Price of bond today

= (964.33*-974.86+60)/974.86 = 5.08

* price of bond after 1 year

Cash Flows | 60 | 1060 |

Forward Rate | 8% | 8% |

Present value | 55.55556 | 908.7791 |

Price | $ 964.33 |

Prices of zero-coupon bonds reveal the following pattern of
forward rates:
Year
Forward Rate
1
6
%
2
7
3
9
In addition to the zero-coupon bond, investors also may purchase
a 3-year bond making annual payments of $60 with par value
$1,000.
a. What is the price of the coupon bond?
(Do not round intermediate calculations. Round your answer
to 2 decimal places.)
b. What is the yield to maturity of the coupon
bond? (Do not round intermediate calculations....

Prices of zero-coupon bonds reveal the following pattern of
forward rates:
Year
Forward Rate
1
8
%
2
11
3
13
In addition to the zero-coupon bond, investors also may purchase a
3-year bond making annual payments of $55 with par value
$1,000.
a. What is the price of the coupon bond?
(Do not round intermediate calculations. Round your answer
to 2 decimal places.)
b. What is the yield to maturity of the coupon
bond? (Do not round intermediate calculations....

The following is a list of prices for zero-coupon bonds of
various maturities. Calculate the yields to maturity of each bond
and the implied sequence of forward rates. (Do not round
intermediate calculations. Round your answers to 2 decimal places .
Omit the "%" sign in your response.
Maturity (Years)
Price of Bond
YTM
Forward Rate
1
$980.90
___%
2
$914.97
___%
____%
3
$843.12
___%
____%
4
$771.76
___%
____%

A newly issued bond pays its coupons once a year. Its coupon
rate is 4%, its maturity is 10 years, and its yield to maturity is
7%.
a. Find the holding-period return for a one-year
investment period if the bond is selling at a yield to maturity of
6% by the end of the year. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Holding-period return
%
b. If you sell the bond after one year when...

A newly issued bond pays its coupons once a year. Its coupon
rate is 4.4%, its maturity is 15 years, and its yield to maturity
is 7.4%.
a.
Find the holding-period return for a one-year investment period
if the bond is selling at a yield to maturity of 6.4% by the end of
the year. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Holding-period return
%
b.
If you sell the bond after one year when...

The following is a list of prices for zero-coupon bonds of
various maturities.
a. Calculate the yield to maturity for a bond
with a maturity of (i) one year; (ii) two years; (iii) three years;
(iv) four years. (Do not round intermediate
calculations. Round your answers to two decimal
places.)
b. Calculate the forward rate for (i) the
second year; (ii) the third year; (iii) the fourth year.
(Do not round intermediate calculations.
Round your answers to two decimal places.)...

The following is a list of prices for zero-coupon bonds of
various maturities.
a. Calculate the yield to maturity for a bond
with a maturity of (i) one year; (ii) two years; (iii) three years;
(iv) four years. (Do not round intermediate
calculations. Round your answers to two decimal
places.)
Maturity (years)
Price of Bond
1
$
955.90
2
916.47
3
834.12
4
766.39
b. Calculate the forward rate for (i) the
second year; (ii) the third year; (iii) the...

The yield to maturity on one-year zero-coupon bonds is 7.4%. The
yield to maturity on two-year zero-coupon bonds is 8.4%.
a. What is the forward rate of interest for the
second year? (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
Forward rate of interest
%
b. If you believe in the expectations
hypothesis, what is your best guess as to the expected value of the
short-term interest rate next year? (Do not round
intermediate calculations. Round...

Langford Co. issued 14-year bonds a year ago at a coupon rate of
7.8%. The bonds make semiannual payments. If the YTM on these bonds
is 6.1%, what is the current bond price? (Do not round intermediate
calculations. Round the final answer to 2 decimal places. Omit $
sign in your response.) Current bond price $

5. A bond with 15 years to maturity pays a 6.1% coupon annually.
Currently, the bond sells for par value. What is the bond’s YTM?
(Do not round intermediate calculations. Round the final answer to
2 decimal places. Omit the % sign in your response. For example, an
answer of 15.39% should be entered as 15.39.)
6. A zero coupon bond with 15 years to maturity has a required
return of 9%. What is the price of the bond? (Do...

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