2. Below is a list of five $1,000 par value zero-coupon bonds. Bond Years to Maturity Yield to Maturity ABCDE Α 1 5.00% В 2 6.00% 3 7.00% Ꭰ 4 8.00% 5 9.00% 1) What is the forward 1-year interest rate four years from now? 2) If liquidity premiums are ignored, at what price shall bond C sell for one year from now? (keep two decimals in the final answer) 3) If your investment horizon is three years and you plan to invest in a bond that allows your position free from interest rate risk, which bond would you buy? What risks do you still face in this investment?
2. Below is a list of five $1,000 par value zero-coupon bonds. Bond Years to Maturity Yield to Maturity ABCDE Α 1 5.00% В 2 6.00% 3 7.00% Ꭰ 4 8.00% 5 9.00% 1) What is the forward 1-year interest rate four years from now? 2) If liquidity premiums are ignored, at what price shall bond C sell for one year from now? (keep two decimals in the final answer) 3) If your investment horizon is three years and you plan to invest in a bond that allows your position free from interest rate risk, which bond would you buy? What risks do you still face in this investment?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 4MC
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