Question

Currently, the term structure is as follows: One-year bonds yield 8.50%, two-year zero-coupon bonds yield 9.50%, three-year and longer maturity zero-coupon bonds all yield 10.50%. You are choosing between one, two, and three-year maturity bonds all paying annual coupons of 9.50%. You strongly believe that at year-end the yield curve will be flat at 10.50%.

a. Calculate the one year total rate of return for the three bonds. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

One year, two year, three year ?

b. Which bond you would buy? One-year bond Two-year bond Three-year bond

Answer #1

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Currently the term structure is as follows: one-year bonds yield
6 percent, two-year bonds yield 7 percent, three-year bonds and
greater maturity bonds all yield 8 percent. An investor with a
one-year investment horizon is choosing between one-, two-, and
three-year maturity bonds all paying annual coupons of 6 percent,
once a year.
a. Which bonds should you buy if you strongly believe that at
year-end the yield curve will be flat at 6 percent? Show your
calculations.
b. Redo...

3. The yield to maturity on 1-year zero-coupon bonds is
currently 7%; the YTM on 2-year zeros is 8%. The Treasury plans to
issue a 2-year maturity coupon bond, paying coupons once
per year
with a coupon rate of 9%. The face value of the bond is
$100.
c. If the expectations theory of the yield curve is
correct, what is the market expectation of the price for which the
bond will sell next year?
d. Recalculate your answer to...

Yield rates to maturity for zero coupon bonds are currently
quoted at 6% for one- year maturity, 7% for two- year maturity, and
7.5% for three- year maturity. Find the present value, two years
from now, of a one- year 1000- par- value zero- coupon bond

Yield Curve
A Zero-coupon bond due in one year is selling at 98.5% of par. A
Zero-coupon bond due in two years is selling at 96%of par. Another
Zero-coupon bond due in three years is selling at 93% of par.
What are the yields of the three bonds?
What are the forward rates for year 2 and for year 3?
Is the yield curve upward sloping, downward sloping, or
flat?

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...

The yield to maturity of a one year zero coupon bond is 4 % p.
a. and the yield to maturity for a two year zero coupon bond is 5 %
p. a. If the par value of a 10% coupon bond (coupons paid annually)
is $1,000 and it matures in two years its price will be:"
"$1,093.89 "
"$1,078.92 "
"$1,068.23 "
"$1,055.12 "

Consider two $1000 par treasury bonds that are zero-coupon: (i)
a 1-year bond with a yield to maturity of 2%; (ii) a 2-year bond
with a yield to maturity of 4%.
The yield curve is??:
A) Upward sloping
B) Downward sloping
C) Flat
What is the 1-year forward rate (f1,2) based on the expectations
model? In other words, what is the expected 1-year rate starting in
one year from now and going one year? (to the nearest whole
percent)
A)...

The yield to maturity on one-year zero coupon bonds is 4.98%.
The yield to maturity on two-year zero coupon bonds is 6.94%.
a. What is the forward rate of interest for the
second year? (Round your answer to 2 decimal
places.)
Forward rate
%
b. According to the expectations hypothesis,
what is the expected value of the one-year interest rate for next
year? (Round your answer to 2 decimal places.)
Expected value

The zero coupon bond yield curve shows that the one-, two-, and
three-year interest rates are 5.0%, 6.3%, and 8.4%, respectively.
What is the price of a three-year bond with a face value of $700
and coupons of 12% paid annually
? (a) $703.89 (b) $549.55 (c) $764.48 (d) $698.53 (e)
$769.84

For a given term structure, you are given the following
information about two bonds that are re-
deemable at par and have face amount $100, and coupons payable
semi-annually.
Bond 1: Coupon rate 4% per year, price $85.12
Bond 2: Coupon rate 10% per year, price $133.34
Find the yield-to-maturity for a 10-year zero coupon bond.

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