Question

You have the following information on three zero coupon bonds:

Bond 1: time to maturity: 1 year, face value = $1,000, bond price = $971.58;

Bond 2: time to maturity: 2 years, face value = $1,000, bond price = $925.47;

Bond 3: time to maturity: 3 years, face value = $1,000, bond price = $858.96.

Part A: Calculate the one, two and three year spot rates.

Part B: Calculate the forward rate over the second year and the forward rate over the third year. Round to at least 2 decimals.

Answer #1

1. 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.
maturity years: Price of bond
1 943.40
2 898.47
3 847.62
4 792.16
2. [Chapter 15] The current yield curve
for default-free zero-coupon bonds is as follows:
Maturity (Years): YTM%
1 10%
2 11%
3 12%
a. What are the implied
1-year forward rates?
b. Assume that the pure
expectations hypothesis of the term structure...

Suppose that the prices today of zero-coupon bonds with various
maturities are in the following table. The face value of every bond
is $1,000.
Maturity in years
Price
1
925.93
2
853.39
3
782.92
4
715.00
5
650.00
Calculate the one-year forward rate of interest for every
year.
Suppose that today you buy one 3-year maturity zero coupon bond.
How many 5-year maturity zeros would you have to sell to make
What are the cash flows from the strategy in...

A "zero coupon bond" (or just "zero") is a bond, that does not
pay any interest, it just pays the face value when it matures. Of
course nobody would purchase a bond without interest, that's why
zero coupon bonds are sold at a discount.
Suppose you are given the following information about the
current prices of zero coupon bonds:
bond:
price
1-year zero, face value $1,000
$909.09
2-year zero, face value $1,000
$826.45
3-year zero, face value $1,000
$718.65
I.e....

Assume the zero-coupon yields on default-free securities are
as summarized in the following table:
Maturity
1 year
2 years
3 years
4 years
5 years
Zero-Coupon Yields
6.20%
6.60%
6.80%
7.10%
7.40%
What is the price of a three-year, default-free security with a
face value of $1,000 and an annual coupon rate of 4%? What is the
yield to maturity for this bond?
What is the price of a three-year, default-free security with a
face value of $1,000 and an...

Consider the following prices of zero coupon bonds, each with a
face value of $1,000, for different maturities:
Maturity
Price
1
962
2
925
3
889
Consider a bond with maturity of 3 years, a coupon rate of 5%
and face value of $1,000. What is the price of this bond?

Suppose that the prices of zero-coupon bonds with various
maturities are given in the following table. The face value of each
bond is $1,000.
Maturity
(Years)
Price
1
$
974.68
2
903.39
3
842.92
4
783.00
5
669.92
a. Calculate the forward rate of interest for
each year. (Round your answers to 2 decimal
places.)
Maturity (years)
Forward rate
2
%
3
%
4
%
5
%
b. How could you construct a 1-year forward
loan beginning in year 3?...

You enter into a forward contract to buy a 10-year, zero coupon
bond that will be issued in one year. The face value of the bond is
$1,000, and the 1-year and 11-year spot interest rates are 5
percent and 7 percent, respectively.
What is the forward price of your contract?
Suppose both the 1-year and 11-year spot rates unexpectedly
shift downward by 2 percent. What is the new price of the forward
contract?

1. A 9-year zero coupon bond has a yield to maturity of
11.8 percent, and a par value of $1,000. What is the
price of the bond?
2. A 7-year bond has a 8 percent coupon rate with the interest
paid in semi annual payments. The yield to maturity of
the bond is 2.3 percent, and a face value of
$1,000. What is the price of the bond?
3. A 12-year bond has a 9 percent annual coupon, a yield to
maturity of...

The price of a zero-coupon bond with maturity 1 year is $943.40.
The price of a zero-coupon bond with maturity 2 years is $898.47.
For this problem, express all yields as net (not gross) rates.
Assume the face values of the bonds are $1000.
Assuming that the expectations hypothesis is valid, what is the
expected price of the 2 year bond at the beginning of the second
year? Expected sort term rate being .05 or 5% in the second
year....

An investor has the following information about a zero-coupon
bond curve: Years to maturity 1 2 3 4 Spot rates 3.23% 3.65% 4.05%
4.30% The investor enters into a 4-year interest rate swap to pay a
fixed rate and receive a floating rate based on future 1-year LIBOR
rates. If the swap has annual payments, what is the fixed rate you
should pay? Six months into the swap the term structure
is now: Years to maturity 0.5 1.5 2.5 3.5...

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