Suppose there is a three-year zero-coupon bond with a face value of $100. Suppose that...
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Suppose there is a three-year zero-coupon bond with a face value of $100. Suppose that we know the following information about the bond
- the current price (year 0) of the bond is $78.23, - the price of the bond in year 1 is $74.54 - the yield of the bond in year 2 is 38.4%
a) What is the price of the bond in year 3? b) What are the yields of the bond in year 0 and 1? What is the price of the bond in year 2? c) If the three maturities traded at the same time with these yields, draw the yield curve of this bond (remember that y-axis of the yield curve is yield and the x-axis of the yield curve is maturity). d) What does the yield curve suggest about the investors expectation about the economy? Is there going to be a boom? A recession? Explain your logic.
Now suppose there is a three-year coupon bond with face value $100. Coupon rate is 5%. This bond shares the yield curve with the previous zero-coupon bond.
e) What is the current price (period 0 price) of the coupon bond? theres is no missjng information. this is all that is given and is a solvable problem.
Suppose there is a three-year zero-coupon bond with a face value of $100. Suppose that we know the following information about the bond
- the current price (year 0) of the bond is $78.23,
- the price of the bond in year 1 is $74.54
- the yield of the bond in year 2 is 38.4%
a) What is the price of the bond in year 3?
b) What are the yields of the bond in year 0 and 1? What is the price of the bond in year 2?
c) If the three maturities traded at the same time with these yields, draw the yield curve of this bond (remember that y-axis of the yield curve is yield and the x-axis of the yield curve is maturity).
d) What does the yield curve suggest about the investors expectation about the economy? Is there going to be a boom? A recession? Explain your logic.
Now suppose there is a three-year coupon bond with face value $100. Coupon rate is 5%. This bond shares the yield curve with the previous zero-coupon bond.
e) What is the current price (period 0 price) of the coupon bond?
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