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.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

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

If you need any clarification, you can ask in comments.     

If you like my answer, then please up-vote as it will be motivating       

answered by: anonymous
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An investor considers the purchase of a 3 year bond with a 7% coupon rate, with...
An investor considers the purchase of a 3 year bond with a 7% coupon rate, with interest paid annually. Assuming the sequence of spot rates shown below answer the following questions. A. The present value of the bond's final cash flow is: B. The yield to maturity of this bond is Time to maturity: Spot rate: 1 3% 2 5% 3 7%
1. A bond offers a coupon rate of 12%, paid annually, and has a maturity of...
1. A bond offers a coupon rate of 12%, paid annually, and has a maturity of 19 years. If the current market yield is 13% (discount rate), what should be the price of this bond? 2. A bond offers a coupon rate of 12%, paid semiannually, and has a maturity of 6 years. If the current market yield is 8%, what should be the price of this bond?
A coupon bond that pays interest annually is selling at a par value of $1,000, matures...
A coupon bond that pays interest annually is selling at a par value of $1,000, matures in five years, and has a coupon rate of 9%. The yield to maturity on this bond is Select one: a. 8.0%. b. 8.3%. c. 9.0%. d. 10.0%. e. None of the options are correct.
NO NEED FOR EXPLANATION 14. Your brother has just invested in a discount bond that offers...
NO NEED FOR EXPLANATION 14. Your brother has just invested in a discount bond that offers an annual coupon rate of 9%, with interest paid annually. The face value of the bond is $1,000 and the difference between its yield to maturity and coupon rate is 4%. The bond matures in 8 years. What is the bond’s price? * a. $808.05 b. $990.50 c. $750 d. $550 e. None of the above 13. Mining Fund has purchased a bond with...
a) First, consider a 10 year bond with a coupon rate of 7% and annual coupon...
a) First, consider a 10 year bond with a coupon rate of 7% and annual coupon payments. Draw a graph showing the relationship between the price and the interest on this bond. The price should be on the y- axis and the interest rate on the x-axis. To compute the various prices, consider interest rates between 2% and 12% (use 0.5% increments). So your x-axis should go from 2%, then 2.5% ... until 11.5% and then 12%. Is the relationship...
3. Suppose a bond’s price is expected to decrease by 5% if its market discount rate...
3. Suppose a bond’s price is expected to decrease by 5% if its market discount rate increases by 100 bps. If the bond’s market discount rate decreases by 100 bps, the bond price is most likely to increase by: a) 5% b) Less than 5% c) More than 5% d) none of the above. 4. An investor is considering the purchase of a 2-year bond with a 5% coupon rate, with interest paid annually. Assuming the following sequence of spot...
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond...
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond sells at par value $1000 and has a convexity of 9.3. The duration of the bond is 2.78. If the interest rate increases from 8% to 9.5%, what price would be predicted by the duration-with-convexity rule?
Bond C is a 2-year bond with a coupon rate of 4%. Interest is paid semi-annually....
Bond C is a 2-year bond with a coupon rate of 4%. Interest is paid semi-annually. Market interest rates have now increased by 80 basis points. Calculate the bond's duration using annual data but with the price calculated earlier ($984.92) Question options: 1) 2.00 years (THIS OPTION IS WRONG) 2) 1.52 years 3) 1.96 years 4) 1.87 years OPTION 1 IS WRONG
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond...
Bond A has a 8% coupon rate, paid annually. Maturity is in three years. The bond sells at par value $1000 and has a convexity of 9.3. The duration of the bond is 2.78. If the interest rate increases from 8% to 9.5%, what price would be predicted by the duration-with-convexity rule? 963.43 965.35 962.43 964.42
A bond offers a coupon rate of 10%, paid semiannually, and has a maturity of 6...
A bond offers a coupon rate of 10%, paid semiannually, and has a maturity of 6 years. If the current market yield is 6%, what should be the price of this bond?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT