Question

Suppose that the prices today of zero-coupon bonds with various maturities are in the following table. The face value of every bond is $1,000.

Maturity in years | Price |

1 | 925.93 |

2 | 853.39 |

3 | 782.92 |

4 | 715.00 |

5 | 650.00 |

Calculate the one-year forward rate of interest for every year.

Suppose that today you buy one 3-year maturity zero coupon bond. How many 5-year maturity zeros would you have to sell to make

What are the cash flows from the strategy in part (b) in each year?

What is the effective 2-year interest rate on the effective 3-year ahead forward loan?

Answer #1

a. The interest rate is calculated as (FV/PV)^(1/n) -1 as shown in the table below:

Maturity in years | Price | Rate |

1 | 925.93 | 8.00% |

2 | 853.39 | 8.25% |

3 | 782.92 | 8.50% |

4 | 715 | 8.75% |

5 | 650 | 9.00% |

(b) Suppose that today you buy one 3-year maturity zero coupon bond. How many 5-year maturity zeros would you have to sell to make (Question Incomplte)

(c) What is the effective 2-year interest rate on the effective 3-year ahead forward loan?

5 year loan rate = 9.00% from the table

3 year rate = 8.50%

Let "r" be the 2-year interest rate on the effective 3-year ahead forward loan

(1+0.085)^3 *(1+r)^2 = (1+0.09)^5

(1+r)^2 = 1.09^5/1.085^3 = 1.2046

r = 1.2046^(1/2)-1

r = 0.0975 = 9.75%

**Effective 2-year interest rate on the effective 3-year
ahead forward loan = 9.75%**

Suppose that the prices of zero-coupon bonds with various
maturities are given in the following table. The face value of each
bond is $1,000.
Maturity
(Years)
Price
1
$
974.68
2
903.39
3
842.92
4
783.00
5
669.92
a. Calculate the forward rate of interest for
each year. (Round your answers to 2 decimal
places.)
Maturity (years)
Forward rate
2
%
3
%
4
%
5
%
b. How could you construct a 1-year forward
loan beginning in year 3?...

The following is a list of prices for zero-coupon bonds of
various maturities. Calculate the yields to maturity of each bond
and the implied sequence of forward rates. (Do not round
intermediate calculations. Round your answers to 2 decimal places .
Omit the "%" sign in your response.
Maturity (Years)
Price of Bond
YTM
Forward Rate
1
$980.90
___%
2
$914.97
___%
____%
3
$843.12
___%
____%
4
$771.76
___%
____%

The following is a list of prices for zero-coupon bonds of
various maturities.
a. Calculate the yield to maturity for a bond
with a maturity of (i) one year; (ii) two years; (iii) three years;
(iv) four years. (Do not round intermediate
calculations. Round your answers to two decimal
places.)
b. Calculate the forward rate for (i) the
second year; (ii) the third year; (iii) the fourth year.
(Do not round intermediate calculations.
Round your answers to two decimal places.)...

1. The following is a list of
prices for zero-coupon bonds of various maturities. Calculate the
yields to maturity of each bond and the implied sequence of forward
rates.
maturity years: Price of bond
1 943.40
2 898.47
3 847.62
4 792.16
2. [Chapter 15] The current yield curve
for default-free zero-coupon bonds is as follows:
Maturity (Years): YTM%
1 10%
2 11%
3 12%
a. What are the implied
1-year forward rates?
b. Assume that the pure
expectations hypothesis of the term structure...

The following is a list of prices for zero-coupon bonds of
various maturities.
a. Calculate the yield to maturity for a bond
with a maturity of (i) one year; (ii) two years; (iii) three years;
(iv) four years. (Do not round intermediate
calculations. Round your answers to two decimal
places.)
Maturity (years)
Price of Bond
1
$
955.90
2
916.47
3
834.12
4
766.39
b. Calculate the forward rate for (i) the
second year; (ii) the third year; (iii) the...

The following is a list of prices for zero-coupon bonds with
different maturities and par values of $1,000.
Maturity (Years)
Price maturity 1 year = $ 925.15
Price maturity 2 years = 862.57
Price maturity 3 years = 788.66
Price maturity 4 years = 711.00
According to the expectations theory, what is the expected
forward rate in the third year?

The following table summarizes prices of various default-free
zero-coupon bonds (expressed as a percentage of the face
value):
Maturity (years)
1
2
3
4
5
Price (per $100 face value)
$96.09
$91.72
$87.08
$82.23
$77.19
a. Compute the yield to maturity for each bond.
b. Plot the zero-coupon yield curve (for the first five
years).
c. Is the yield curve upward sloping, downward sloping, or
flat?
a. Compute the yield to maturity for each bond.
The yield on the 1-year...

The following table summarizes prices of various default-free
zero-coupon bonds (expressed as a percentage of the face
value):
Maturity (years)
1
2
3
4
5
Price (per $100 face value)
$95.26
$90.77
$86.18
$81.34
$76.09
a. Compute the yield to maturity for each bond.
b. Plot the zero-coupon yield curve (for the first five
years).
c. Is the yield curve upward sloping, downward sloping, or
flat?
a. Compute the yield to maturity for each bond.
The yield on the 1-year...

Consider the following prices of zero coupon bonds, each with a
face value of $1,000, for different maturities:
Maturity
Price
1
962
2
925
3
889
Consider a bond with maturity of 3 years, a coupon rate of 5%
and face value of $1,000. What is the price of this bond?

The following table summarizes prices of various default-free
zero-coupon bonds (expressed as a percentage of the face
value):
Maturity (years)
1
2
3
4
5
Price (per $100 face value)
$95.2795.27
$90.8890.88
$86.3686.36
$81.6481.64
$76.4576.45
a. Compute the yield to maturity for each
bond.
b. Plot the zero-coupon yield curve (for the
first five years).
c. Is the yield curve upward sloping,
downward sloping, or flat?

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