Question
A 3-year bond offers a 10% coupon rate with interest paid annually. Assuming the following sequence...
A 3-year bond offers a 10% coupon rate with interest paid annually. Assuming the following sequence of spot rates, the price of the bond is closest to: Time to maturity Spot Rates 1 year 8.0% 2 years 9.0% 3 years 9.5%
A. 96.98
B. 101.46
C. 102.95
D. None of the above.
Homework Answers
Answer #2
Par Value of Bond assuming to be $100
Annual Coupon Payment = $100*10%
= $10
No of Years to maturity = 3
Calculating the Price of Bond using 3 different Spot Rates at different time period:-
where, YTM1 = 8%
YTM2 = 9%
YTM3 = 9.50%
Price = $9.2593 + $8.4168 + $7.6165 + $76.1654
Price = $101.46
So, The Bond Price is closest to $101.46
Option B
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