Suppose you are given the following information about the default- free, coupon-paying yield curve: maturity (years) 1 Coupon rate (annual payments) 0% YTM 2 10% 3.000% 4.908% 3 6% 6.840% Use arbitrage to determine the yield to maturity of a two-year and three year zero-coupon bond . (express in percentages, round to whole percentag

Suppose you are given the following information about the default- free, coupon-paying yield curve: maturity (years) 1 Coupon rate (annual payments) 0% YTM 2 10% 3.000% 4.908% 3 6% 6.840% Use arbitrage to determine the yield to maturity of a two-year and three year zero-coupon bond . (express in percentages, round to whole percentag

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon rate (annual payment) YTM 1 0.00% 2.587% a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. b. What is the zero-coupon yield curve for years 1 through 4? Note: Assume annual compounding. 2 11.00% 4.008% a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. The yield to maturity of a two-year, zero-coupon bond is %. (Round to two decimal places.) b. What is the zero-coupon yield curve for years 1 through 4? The yield to maturity for the three-year and four-year zero-coupon bond is found in the same manner as the two-year zero-coupon bond. The yield to maturity on the three-year, zero-coupon bond is %. (Round to two decimal places.) The yield to maturity on the four-year, zero-coupon bond is %. (Round to two decimal places.) Which graph best depicts the yield curve of the zero-coupon bonds? (Select the…
Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon rate (annual payment) YTM a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. b. What is the zero-coupon yield curve for years 1 through 4? Note: Assume annual compounding. a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. The yield to maturity of a two-year, zero-coupon bond is %. (Round to two decimal places.) b. What is the zero-coupon yield curve for years 1 through 4? The yield to maturity for the three-year and four-year zero-coupon bond is found in the same manner as the two-year zero-coupon bond. The yield to maturity on the three-year, zero-coupon bond is %. (Round to two decimal places.) %. (Round to two decimal places.) The yield to maturity on the four-year, zero-coupon bond is Which graph best depicts the yield curve of the zero-coupon bonds? (Select the best choice below.) O A. 8- 7- 6-…
Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) 1 Coupon rate (annual payments) 0.00 YTM 2.000% 2 10.00 3.908% Show your work in Excel Solution. 3 6.00 5.840% 4 12.00 5.783% a. Use arbitrage to determine the yield to maturity of a two-year, zero- coupon bond. b. What is the zero-coupon yield curve for years 1 through 4?
1. Consider the following bond that pays coupon interest semi-annually. Coupon Yield to maturity Maturity (Years) Par Value Bond 8% 6% 2 $100 a) What is the price value of a basis point? Assuming one basis point decrease. b) Compute the Macaulay duration theoretically. What is the modified duration? c) Compute the approximate duration by increasing yield by 20 basis points and compare your answers with those calculated in part (b). d) Compute the convexity measure theoretically. e) When the yield increases by 20 basis points, what is the new bond price? What is the estimated bond price using duration calculated in part (b)? What is the estimated bond price using duration calculated in part (b) together with the convexity calculated in part (d)?
Assume the pure expectation theory holds: If the return on 6 years maturity treasury bill (TB) is 8%, the return on 1-year maturity TB is 6%, the return on a 2 years maturity (TB) is 7%, X is the return on a 3-year maturity bond. a. Calculate X, the forward rate, the return on a 3-year maturity bond, 3 years from today. b. Graph the yield curve c. Based on the yield curve you just derived, what are your expectations of the future performance of the economy?
Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Zero-coupon YTM 1 5.00% 2 5.30% 3 5.50% 4 5 5.70% 5.80% Consider a five-year, default-free bond with annual coupons of 6% and a face value of $1,000. a. Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain. b. What is the yield to maturity on this bond? c. If the yield to maturity on this bond increased to 6.20%, what would the new price be? a. Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain. The bond is trading at because its yield to maturity is a weighted average of the yields of the zero-coupon bonds. (Select from the drop-down menu.)
The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of the face value): Maturity (years) Price (per $100 face value) 1 $96.32 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 bond is %. (Round to two decimal places.) 2 $91.93 3 $87.36 4 5 $82.57 $77.42
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) 1 2 3 4 5 Price $983.78 865.89 797.92 732.00 660.24 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4?
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) Yield to Maturity 1 4.33% 2 4.64% 3 4.92% 4 5.09% 5 5.30% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b. What the price per $100 face value of a 4-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 1-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? The price is $ (Round to the nearest cent.) b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? The price is $ (Round to the nearest cent.) c. What is the risk-free interest rate for a 1-year maturity? The risk-free rate is %. (Round to two decimal places.)
Using a spreadsheet, find the yield-to-maturity (YTM) on an 8-year, 6% coupon bond such that the present value of its coupons equals the present value of its par value. Report your answer as a percentage with 2-digit precision (ex. show 12.3456% as 12.35). hint: "Goal seek"
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 4.45% 2 4.80% Yield to Maturity a. What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond? b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 3-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond? The price is $ (Round to the nearest cent.) b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? The price is $. (Round to the nearest cent.) c. What is the risk-free interest rate for a 3-year maturity? The risk-free rate is %. (Round to two decimal places.) C--- 3 5.06% 4 5.25% 5 5.38%
The following table contains data to calculate forward rates using pure expectations theory.a) Find the yield on a 8 year bond, 2 years forward (2r8).b) Find the yield on a 6 year bond, 3 years forward (3r6).Maturity Yield1 year 2.00%2 years 2.20%3 years 3.40%4 years 4.50%5 years 5.00%6 year 5.00%7 years 5.20%8 years 5.40%9 years 5.50%10 years 5.50% Please help me with this show the work and do it in excel Many thanks

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