Question

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?

Answer #1

Assuming face value of bond is 1000.

a.)

Yiield

Year

1 = 1.523%

2 = 2.062%

3 = 2.449%

b)

F 1,2 = 2.604%

F2,3 = 3.226%

C.

Upward Sloping

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 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...

The following table summarizes the prices the default-free zero
coupon bonds (expressed as a percentage of the face value)
Maturity (years) 1 2 3 4 5
Price (Per face value) $ 96.47 $ 92.08 $ 87..41 $ 82.55 $
77.48
a. compute the yield to maturity of each bond
b.Plot the zero-coupon yield curve (for the first five
years)
c. Is the yield curve upward sloping or downward sloping or
flat?
a. Compute the yield to maturity of each 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?

The following table summarizes prices of various default-free,
zero-coupon bonds (expressed as a percentage of face value):
Maturity (years) 1 2 3 4 5
Price (per $100 face value) $95.51 $91.05 $86.38 $81.65
$76.51
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.

The following table summarizes prices of various default-free
zero-coupon bonds ($100 face value):
Maturity (years)
1
2
3
4
5
Price (per $100 face value)
$96.95
$92.52
$88.00
$83.13
$78.10
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?
Note:
Assume annual compounding.
a. Compute the yield to maturity for each bond.
The yield on the 1-year bond...

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.

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

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

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