Suppose you observe the following effective annual zero-coupon bond yields: 0.030 (1-year), 0.035 (2-year), 0.040 (3-year), 0.045 (4-year), 0.050 (5-year). For each maturity year compute the zero-coupon bond prices, continuously compounded zero-coupon bond yields, the par coupon rate, and the 1-year implied forward rate. Show work and discuss your result. Briefly discuss who uses Zero coupon bonds and why?
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Suppose you observe the following effective annual zero-coupon bond yields: 0.030 (1-year), 0.035 (2-year), 0.040 (3-year), 0.045 (4-year), 0.050 (5-year).
- For each maturity year compute the zero-coupon
bond prices , continuously compounded zero-coupon bond yields, the par coupon rate, and the 1-year implied forward rate. Show work and discuss your result. - Briefly discuss who uses Zero coupon bonds and why?
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- The following table summarizes the prices of various default-free zero-coupon bonds (expressed as a percentage of the face value): 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 the face value):. 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.) Data table (Click on the following icon Maturity (years) Price (per $100 face value) in order to copy its contents into a spreadsheet.) 2 $91.99 3 $87.33 1 $96.35 Print Done 4 $82.48 5 $77.37 XThe 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
- The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of the face value): 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 3.92 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Price (per $100 face value) 1 $95.51 2 3 $91.10 $86.55 $81.69 $76.45 Print DondayConsider a 4-years bond with a 8% annual coupon rate and semi-annual payments. Let us suppose that the zero coupon curve rate today with annual compounding is given by the one in Table 1.(a) Calculate the discount factors for all the previous maturities and then the bond price.(b) Calculate the equivalent continuous compounding rates. What do you expect as result for the bond price with these rates? Should it be lower, higher or equal to the one in part (a)? Why? The equivalent continuous compounding rates should be lower than the annual rates. Why?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-…
- The function s(t) = 0.16 − 0.04 e− t/4 provides the term structure of effective annual rates of zero coupon bonds of maturity t, with t in years. Find the following: (a) The effective annual rate of a 3 year zero coupon bond. (b) The 2-year forward effective annual rate for a one year period. (c) The forward effective annual rate for a one year period, 3 years forward. (d) The 3-year forward effective annual rate for a 3 month period. (e) The forward effective annual rate for a one day period, 3 years forward (the “overnight” rate).(Use 1/365 for a one-day period.)Suppose that the interest rate on one-year bonds is currently 4 percent and is expected to be 5 percent in one year and 6 percent in two years. Using the expectations hypothesis, compute the yields on two- and three-year bonds and plot the yield curve.Consider a semi-annual bond that has a par value of 100, a 15-year maturity, a 5% coupon rate. Monthly interest rate is 0.412%. (a) Calculate the annualized semi-annual compounding yield. (b) What is the price of the bond (without calculation)? And explain why you can determine the price of the bond without calculation? (c) Using answers from (b), calculate the modified duration of this bond. (d) Using answers from (b) and (c), suppose that the bond’s yield to maturity decreases to 3.5%. How much will the bond price increase by applying the duration rule? (e) Do you agree with the following statement, and explain why? “If two bonds have the same duration, then the percentage change in price of the two bonds will be the same for a given change in interest rates.” (f) Discuss the problems with the traditional bond pricing approach by using the yield to maturity. (300 words Maximum)
- Assume that a bond will make payments every six months as shown on the following timeline (using six- month periods): Period Cash Flows a. What is the maturity of the bond (in years)? b. What is the coupon rate (as a percentage)? c. What is the face value? $19.36 2 $19.36 CHE a. What is the maturity of the bond (in years)? The maturity is years. (Round to the nearest integer.) 19 $19.36 20 $19.36+ $1,000A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.Suppose the yield on a one year bond is currently 2.5%. Further assume that the expected yield on a one-yea the next four years are, respectively: 2.4%, 2.3%, 2.2%, and 2.1%. Additionally, the term premium on the one-, three-, four-, and five-year bonds are given in the table below: Term Premium on Different Maturity Length Bonds Maturity Length Term Premium one-year 0.00% two-year three-year four-year five-year a. b. flat 0.05% Given the information above, if the yield curve of these five bonds were graphed, it would be 0.10% e. 0.15% downward sloping upward sloping 0.20% C. flat then upward sloping d. upward sloping then downward sloping