Question

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?

Answer 1

a.

Yield to maturity of each zero coupon bond is calculated in excel and screen shot provided below:

b.

Zero-coupon yield curve? (for the first five? years). is ploted in excel and screen shot provided below:

c.

Yield curve is upward sloping.