Maturity (years)Spot rate (%)1-year Forward rate (%)0-years from now 1.251-year from now 1.752-years from now 1.908Cash flow$3$3$10311.2521.50191.70491Using the same information above, what is the price of the bond if it is callable at Par one year and two years from nowat zero volatility?O A. $106.6914B. $104.6914OC. $102.6914OD. $114.6914

To calculate the price of a bond, we need to determine its present value (PV) of all future cash…

Maturity (years) 1 2 3 Spot rate (%) 1.25 1.5019 1.70491 1-year Forward rate (%) 0-years from now 1.25 1-year from now 1.75 2-years from now 1.908 Cash flow $3 $3 $103 Using the same information above, what is the price of the bond if it is callable at Par one year and two years from now at zero volatility?

Maturity (years) 1 2 3 Spot rate (%) 1.25 1.5019 1.70491 1-year Forward rate (%) 0-years from now 1.25 1-year from now 1.75 2-years from now 1.908 Cash flow $3 $3 $103 Using the same information above, what is the price of the bond if it is callable at Par one year and two years from now at zero volatility?

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

See similar textbooks

Similar questions

K Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods): 0 2 5 Period $19.53 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? Cash Flows View an example Get more help. ★ a. What is the maturity of the bond (in years)? The maturity is years. (Round to the nearest integer.) A 6 1 MacBook Pro & 7 $19.53 * 8 9 C 59 $19.53 60 $19.53+$1,000 Clear all BUB 0 {
Bonds have a maturity risk premium that can be modeled as the following:MRP = (t-1) 0.3%were t represents the years to maturity. What is the Maturity risk premium of a bond that matures in 8 years? answer in % without the symbol
The term structure for zero-coupon bonds is currently: Maturity (Years) YTM (%) 1 4.7% 123 5.7 6.7 Next year at this time, you expect it to be: Maturity (Years) YTM (%) 1 5.7% 23 2 6.7 7.7 3 Required: a. What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? b. Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? c. Is the market's expectation of the return on the 3-year bond greater or less than yours? Complete this question by entering your answers in the tabs below. Required A Required B Required C What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? Note: Round your answer to 1 decimal place. Rate of return % < Required A Required B
You observe the following term structure: Effective Annual YTM 1-year zero-coupon bond 2-year zero-coupon bond 3-year zero-coupon bond 4-year zero-coupon bond 8.1% 8.2 8.3 8.4 a. If you believe that the term structure next year will be the same as today's, calculate the return on (i) the 1-year zero and (1i) the 4-year zero. (Do not round intermediate calculations. Round your answers to 1 decimal place.) One year return on 1-year bond One year return on 4-year bonds % % b. Which bond provides a greater expected 1-year return? O 1-year zero-coupon bond O 4-year zero-coupon bond
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?
Assume that the modified duration of a bond is 2.45 years and that the potential adverse move in yield is 16.5 basis points. What is the bond's price volatility (round to two decimals)? A. -2.45 ´ 0.0165 = -4.04%. B. 2.45 X 0.00165 = 0.40%. C. -2.45 ´ 0.00165 = -0.40%. D. 2.45 ´ 0.0165 = 4.04%.
The term structure for zero-coupon bonds is currently: Maturity (Years) YTM (%) 1 4.6% 5.6 6.6 2 3 Next year at this time, you expect it to be: Maturity (Years) 2 YTM (%) 5.6% 6.6 7.6 Required: a. What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? b. Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? c. Is the market's expectation of the return on the 3-year bond greater or less than yours? Complete this question by entering your answers in the tabs below. Required A Required B Required C Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? Note: Round your answers to 2 decimal places. Maturity 1 2 YTM % %
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)?
Ex. Given the following prices of zero - coupon bonds, find the sequence of spot and forward rates. n (years) po 1 $952.38 2 $898.45 3 $827.85 Ex. In the problem above, what is the price and ytm of a 3-year 10% annual coupon bond?
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 at time t = 0 we observe the following forward rates F(0,0, 1/4) F(0, 1/4, 1/2) F(0, 1/2, 3/4) F(0,3/4,1) 6% 7% 5% 8% Answer the following two questions: a) What is the price of a zero-coupon bond with principal 100 and maturity in 1 year? Round your answer to 2 decimal places
Consider the following bonds. Bond A B с D Coupon Rate (annual payments) 0.0% 0.0% 3.5% 7.8% Maturity (years) 10 15 15 10 Which of the bonds A to D is most sensitive to a 1% drop in interest rates from 6.7% to 5.7%? Which bond is least sensitive? Provide an intuitive explanation for your answer.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS