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Yield rates to maturity for zero coupon bonds are currently quoted at 6% for one- 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

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Answer:-

Given That:-

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

Given,

Fwd rate of one year 2 years =

= 1.0851 - 1

= 0.0851

i.e,

8.51%

PV of Bond = Maturity Value * PVF(r%, n)

= $ 1000 * PVF(8.51%, 1)

= $ 1000 * 0.9216

= $ 921.60

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