Question

what is zero coupon bond and why zero coupon rate implied coupon rate

what is zero coupon bond and why zero coupon rate implied coupon rate

Homework Answers

Answer #1

Zero Coupan bond is a kind of bond that do not make any Coupan payments.In this type of bond investor receives the principal as well as interest on maturity.These type of bonds are issued at discount i.e price far lower than their face value.The interest here is refered as imputed interest.The maturity date on ZCB is usually long term.

Zero Coupan rate is refered as implied coupon rate since it doesn't pay Coupan on regular intervals but it pay implied interest at maturity.Zero Coupan doesn't mean it doesn't yield profit but it is payable at the time of maturity of bond.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An investor purchases a 2-year zero-coupon bond with par value of $1,000 at $960. The implied...
An investor purchases a 2-year zero-coupon bond with par value of $1,000 at $960. The implied interest earned on the bond is closest to: A) $0 B) $20 C) $40 D) None of the above. Interest should always be denoted in % not dollars, E) Unable to calculate because the discount rate is missing
1. Assume the interest rate in the market for one-year zero-coupon government bonds is i =...
1. Assume the interest rate in the market for one-year zero-coupon government bonds is i = 8% and the rate for one-year zero-coupon grade BBB bonds is k = 10.2%. What is the implied probability of repayment on the corporate bond (round to two decimals)? A. 2.00% B. 2.04% C. 97.96% D. 98.00% 34. 2. Assume the interest rate in the market for one-year zero-coupon government bonds is i = 7.5% and the rate for one-year zero-coupon grade BB bonds...
Suppose that the current one-year zero-coupon rate is 3.5% and that the expected one-year rate next...
Suppose that the current one-year zero-coupon rate is 3.5% and that the expected one-year rate next year is 5%. If the current 2-year spot rate is 4.5%, what is the implied term premium for the two-year zero-coupon bond? Use the approximation from class.
What is the implied interest rate on a Treasury bond ($100,000, 6% coupon, semiannual payment with...
What is the implied interest rate on a Treasury bond ($100,000, 6% coupon, semiannual payment with 20 years to maturity) futures contract that settled at 100'12? Do not round intermediate calculations. Round your answer to two decimal places. __% If interest rates increased by 2%, what would be the contract's new value? Do not round intermediate calculations. Round your answer to the nearest cent.
A "zero coupon bond" (or just "zero") is a bond, that does not pay any interest,...
A "zero coupon bond" (or just "zero") is a bond, that does not pay any interest, it just pays the face value when it matures. Of course nobody would purchase a bond without interest, that's why zero coupon bonds are sold at a discount. Suppose you are given the following information about the current prices of zero coupon bonds: bond: price 1-year zero, face value $1,000 $909.09 2-year zero, face value $1,000 $826.45 3-year zero, face value $1,000 $718.65 I.e....
For a zero-coupon bond: A. The coupon rate is lower than the market rate B. The...
For a zero-coupon bond: A. The coupon rate is lower than the market rate B. The cash received from investors is less than the bond's face value C. Amortization of bond discount equals to the interest expense D. The bond's net book value rises over time E. All of the above
Consider a 15-year zero-coupon bond with 10% annual coupon rate. By what percentage will the price...
Consider a 15-year zero-coupon bond with 10% annual coupon rate. By what percentage will the price of this bond change if its yield to maturity increases from 5% to 6%? The price decreases by      Select one: A. 11.8% B. 13.2% C. 12.1% D. 14.2%
f the YTM on a one-year zero-coupon bond is 4%, the YTM on a two-year zero-coupon...
f the YTM on a one-year zero-coupon bond is 4%, the YTM on a two-year zero-coupon bond is 5.6%, the YTM on a three-year zero-coupon bond is 4.6%, the YTM on a four-year zero-coupon bond is 7.5%, and the YTM on a five-year zero-coupon bond is 8.9%, what is the two-year forward rate starting two years from now? Express your answer in percent rounded to the nearest basis point.
A 2-year zero-coupon bond is selling for $890.00. What is the yield to maturity of this...
A 2-year zero-coupon bond is selling for $890.00. What is the yield to maturity of this bond? The price of a 1-year zero coupon bond is $931.97. What is the yield to maturity of this bond? Calculate the forward rate for the second year.
Given the following information: 1-year zero-coupon Corporate yield: 11.6% 2-year zero-coupon Corporate yield: 23.2% 1-year zero-coupon...
Given the following information: 1-year zero-coupon Corporate yield: 11.6% 2-year zero-coupon Corporate yield: 23.2% 1-year zero-coupon Treasury bonds yield: 8.6% 2-year zero-coupon Treasury bonds yield: 17.2% Recovery rate of Corporate Bond: 0.58 What is this firm’s implied cumulative probability of default (in percentage)? NOTE: Round all calculations to 4 decimal places. If your final number is 0.1234 then write 12.34