You are considering investing in a 20% coupon rate bond with the annual coupons, a three-year majority and a face value of $1000. You observe the following prices for discount or zero - coupon bonds with face value of $100 (STRIPS): Time to maturity 1 year 2 Years 3 Years Price 96.71 92.21 84.47 (a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What is the yield to maturity on the one-year STRIP? (d) What is the yield to maturity on the two-year STRIP? (e) What is the yield to maturity on the three-year STRIP? (f) What does the market expect the 1 year to be in 1 year from now? (g) What does the market expect the 1 year to be in 2 years from now? (h) What does the market expect the 2 years to be in 1 year from now?
You are considering investing in a 20% coupon rate bond with the annual coupons, a three-year majority and a face value of $1000. You observe the following prices for discount or zero - coupon bonds with face value of $100 (STRIPS): Time to maturity 1 year 2 Years 3 Years Price 96.71 92.21 84.47 (a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What is the yield to maturity on the one-year STRIP? (d) What is the yield to maturity on the two-year STRIP? (e) What is the yield to maturity on the three-year STRIP? (f) What does the market expect the 1 year to be in 1 year from now? (g) What does the market expect the 1 year to be in 2 years from now? (h) What does the market expect the 2 years to be in 1 year from now?
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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Transcribed Image Text:You are considering investing in a 20% coupon rate bond with the annual coupons, a three-year majority and a face
value of $1000. You observe the following prices for discount or zero - coupon bonds with face value of $100 (STRIPS):
Time to maturity 1 year 2 Years 3 Years Price 96.71 92.21 84.47 (a) What is the fair market price of the bond? (b) What is
the yield to maturity of the bond? (c) What is the yield to maturity on the one-year STRIP? (d) What is the yield to
maturity on the two-year STRIP? (e) What is the yield to maturity on the three-year STRIP? (f) What does the market
expect the 1 year to be in 1 year from now? (g) What does the market expect the 1 year to be in 2 years from now? (h)
What does the market expect the 2 years to be in 1 year from now?
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