Suppose that you purchase a $1,000 zero-coupon bond that matures 3 years from now and is...
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Suppose that you purchase a $1,000 zero-coupon bond that matures3 years from now and is priced to yield 4.5%., Assume interest iscompounded semi-annually.
a. How much will you pay for the bond with exactly 3 years tomaturity?
b. One year later, if interest rates remain the same, what willbe the price of the bond?
c. If you paid $850 for the bond with 3 years to maturity, andheld it until maturity, what will be your expected return (i.e.yield-to-maturity)?
Suppose that you purchase a $1,000 zero-coupon bond that matures3 years from now and is priced to yield 4.5%., Assume interest iscompounded semi-annually.
a. How much will you pay for the bond with exactly 3 years tomaturity?
b. One year later, if interest rates remain the same, what willbe the price of the bond?
c. If you paid $850 for the bond with 3 years to maturity, andheld it until maturity, what will be your expected return (i.e.yield-to-maturity)?
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