P6-5 Zero Coupon Bond Price Calculate the price of a zero coupon bond (no interest...
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P6-5 Zero Coupon Bond Price Calculate the price of a zero coupon bond (no interest payments) that matures in 15 years if the market interest rate is 7.25 percent (most bonds pay interest semi-annually, so unless specified, always use semi- annual compounding).
P6-2 Unbiased Expectations Theory Suppose that the current one-year rate (one- year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:
1R1=7%, E(2r1) =9%, E(3r1) =6.0% E(4r1)=4%
Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. Show your answers in percentage form to 3 decimal places.
Note that:
Rate for a two year security
= [(1 + 1R1)(1 + E(2r1))]1/2 - 1
Rate for a three year security
= [(1 + 1R1)(1 + E(2r1))(1 + E(3r1))]1/3 - 1
Rate for a four year security
= [(1 + 1R1)(1 + E(2r1))(1 + E(3r1))(1 + E(4r1))]1/4 - 1
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