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.

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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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answered by: anonymous
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