Question

The following annual forward rates are available in the market today: F0,1 = 0.80%, F1,2 =...

The following annual forward rates are available in the market today: F0,1 = 0.80%, F1,2 = 1.12%, F2,3 = 3.94%, F3,4 = 3.28% and F4,5 = 3.14%. The value per 100 of par value of a three-year, 9.5% coupon bond, with interest paid annually, is closest to:
       a. 122.10
       b. 124.17
       c. 105.82.
       d. 105.99
       e. 125.91

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Let us calculate the intrinsic value of the zero-coupon bond.

The intrinsic value of the bond is the present value of all the cash flows.

Accordingly, the present value of the cash flow can be calculated using the following table.

Year Cash flows Discount factor Present Value
1 9.5 1/1.08             9.4246
2 9.5 1/(1.08*1.0112)             9.3202
3 109.5 1/(1.08*1.0112*1.0394)        103.3556

Hence the total PV is 122.1004

Please be noted that F 0,1 means from today for a period of 1 year the rate of interest is 0.8%

F1,2 means after 1 year for a period of 1 year the rate of interest is 1.12%

Similarly it can be taken for other items also.

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
The following annual forward rates are available in the market today: F0,1 = 0.80%, F1,2 =...
The following annual forward rates are available in the market today: F0,1 = 0.80%, F1,2 = 1.12%, F2,3 = 3.94%, F3,4 = 3.28% and F4,5 = 3.14%. The 3-year implied spot rate is closest to: a. 1.18%. b. 1.94%. c. 2.28%. d. 3.48%. e. 3.65%. The following annual forward rates are available in the market today: F0,1 = 0.80%, F1,2 = 1.12%, F2,3 = 3.94%, F3,4 = 3.28% and F4,5 = 3.14%. The 2-year implied spot rate is closest to:...
Today is January 1, 2008, and you are considering the purchase of a current Puckett Corporation...
Today is January 1, 2008, and you are considering the purchase of a current Puckett Corporation bond issued on January 1, 2006. The Puckett bond has an annual coupon of 9.5 percent and an original maturity of 30 years (expires 31 December 2037). Interest rates have decreased since the bond was issued, and the bond is now selling at 116,575 percent of its face value, or $ 1,165.75. What is the yield to maturity in 2008 for the Puckett bond?...
Question 4: What is the value today of the following two bonds? Which of the two...
Question 4: What is the value today of the following two bonds? Which of the two bonds has a greater value today – bond A or B? Bond A:                                                                                   Par Value: $1,400 Coupon Rate = 10% paid annually Yield to Maturity = 5.5% Maturity = 4 Years Bond B: Par Value: $1,600 Coupon Rate = $140 paid annually Yield to Maturity = 4% Maturity = 5 Years
Consider a 20-year bond with an annual coupon of 10%. The coupon rate will remain fixed...
Consider a 20-year bond with an annual coupon of 10%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 8%. Which of the following statements is correct? 1) The bond should currently be selling at its par value. 2) If market interest rates decline, the price of the bond will also decline. 3) If market interest rates remain unchanged, the bond’s price one year from now will be higher than it...
General Mills has a $1,000 par value, 10-year to maturity bond outstanding with an annual coupon...
General Mills has a $1,000 par value, 10-year to maturity bond outstanding with an annual coupon rate of 7.89 percent per year, paid semiannually. Market interest rates on similar bonds are 11.30 percent. Calculate the bond’s price today.
10) You are analyzing a B-rated Munipal bond available for sale in the market today. The...
10) You are analyzing a B-rated Munipal bond available for sale in the market today. The bond has a term of two years, a coupon of 4.20% paid annually and a face value of $1,000. The market's expected return for B-rated Municipal bonds is currently 5.10% Which of the following equations represents the market value of this bond? A) PV = 5.10/(1.042) + 1,005.10/(1.042)2 B) PV = 42/(1.051) + 42/(1.051)2 + 1,000/(1.051)3 C) PV = 42/(1.051) + 1,042/(1.051)2 D) PV...
You are given the following yield curve (spot rates at different maturities) Note : All rates...
You are given the following yield curve (spot rates at different maturities) Note : All rates are semiannuallycompounded.  The annual coupon rate of a one-year bond is 6%. The coupons are paid semiannually and the face value of the bond is $100. The price of this bond is____________ (take three digits after the decimal point). The forward rate at which one can lend or borrow money 0.5 year from today for a period of 0.5 year (0.5f0.5) is__________ %( take three...
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.
A bond that matures in 14 years has a ​$1000 par value. The annual coupon interest...
A bond that matures in 14 years has a ​$1000 par value. The annual coupon interest rate is 9 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 13 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually? a.  The value of this bond if it paid interest annually would be ​$?
A bond that matures in 20 years has a $1,000 par value. The annual coupon interest...
A bond that matures in 20 years has a $1,000 par value. The annual coupon interest rate is 11 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 15 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually? The value of this bond if it paid interest annually would be $_ The value of this bond if it...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT