2. Below is a list of five $1,000 par value zero-coupon bonds. Bond Years to Maturity Yield to Maturity ABCDE Α 1 5.00% В 2 6.00% 3 7.00% Ꭰ 4 8.00% 5 9.00% 1) What is the forward 1-year interest rate four years from now? 2) If liquidity premiums are ignored, at what price shall bond C sell for one year from now? (keep two decimals in the final answer) 3) If your investment horizon is three years and you plan to invest in a bond that allows your position free from interest rate risk, which bond would you buy? What risks do you still face in this investment?
2. Below is a list of five $1,000 par value zero-coupon bonds. Bond Years to Maturity Yield to Maturity ABCDE Α 1 5.00% В 2 6.00% 3 7.00% Ꭰ 4 8.00% 5 9.00% 1) What is the forward 1-year interest rate four years from now? 2) If liquidity premiums are ignored, at what price shall bond C sell for one year from now? (keep two decimals in the final answer) 3) If your investment horizon is three years and you plan to invest in a bond that allows your position free from interest rate risk, which bond would you buy? What risks do you still face in this investment?
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
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Transcribed Image Text:2. Below is a list of five $1,000 par value zero-coupon
bonds.
Bond
Years to Maturity
Yield to Maturity
A
1
5.00%
B
2
6.00%
C
3
7.00%
D
4
8.00%
E
5
9.00%
1) What is the forward 1-year interest rate four years
from now?
2) If liquidity premiums are ignored, at what price shall
bond C sell for one year from now? (keep two decimals
in the final answer)
3) If your investment horizon is three years and you
plan to invest in a bond that allows your position free
from interest rate risk, which bond would you buy?
What risks do you still face in this investment?
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