PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 3, Problem 21PS
Spot interest rates and yields Assume annual coupons.
- a. What is the formula for the value of a two-year, 5% bond in terms of spot rates?
- b. What is the formula for its value in terms of yield to maturity?
- c. If the two-year spot rate is higher than the one-year rate, is the yield to maturity greater or less than the two-year spot rate?
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The rate of return that you would earn if you bought a bond and held It to its maturity date is called the bond's yield to maturity (YTM). If Interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to Its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price? Briefly explain with necessary numerical data.
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-…
please answer all the questions.
1. What is the typical yield of a long-term bond?
2. What is the assumed inflation rate?
Chapter 3 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 3 - (PRICE) In February 2009, Treasury 8.5s of 2020...Ch. 3 - (YLD) On the same day, Treasury 3.5s of 2018 were...Ch. 3 - (DURATION) What was the duration of the Treasury...Ch. 3 - (MDURATION) What was the modified duration of the...Ch. 3 - Bond prices and yields A 10-year bond is issued...Ch. 3 - Bond prices and yields The following statements...Ch. 3 - Bond prices and yields Construct some simple...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year U.S. Treasury...
Ch. 3 - Bond returns If a bonds yield to maturity does not...Ch. 3 - Bond returns a. An 8%, five-year bond yields 6%....Ch. 3 - Prob. 10PSCh. 3 - Duration True or false? Explain. a....Ch. 3 - Duration Here are the prices of three bonds with...Ch. 3 - Duration Calculate the durations and volatilities...Ch. 3 - Prob. 14PSCh. 3 - Duration Find the spreadsheet for Table 3.4 in...Ch. 3 - Prob. 16PSCh. 3 - Spot interest rates and yields Which comes first...Ch. 3 - Prob. 18PSCh. 3 - Spot interest rates and yields Look again at Table...Ch. 3 - Prob. 20PSCh. 3 - Spot interest rates and yields Assume annual...Ch. 3 - Spot interest rates and yields A 6% six-year bond...Ch. 3 - Spot interest rates and yields Is the yield on...Ch. 3 - Prob. 24PSCh. 3 - Measuring term structure The following table shows...Ch. 3 - Term-structure theories The one-year spot interest...Ch. 3 - Term-structure theories Look again at the spot...Ch. 3 - Real interest rates The two-year interest rate is...Ch. 3 - Prob. 30PSCh. 3 - Bond ratings A bonds credit rating provides a...Ch. 3 - Prob. 32PSCh. 3 - Price and spot interest rates Find the arbitrage...Ch. 3 - Prob. 34PSCh. 3 - Prices and spot interest rates What spot interest...Ch. 3 - Prices and spot interest rates Look one more time...
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