A two-year bond with par value $1,000 making annual coupon payments of $100 is priced at $1,000. What is the yield to maturity of the bond? What will be the realized compound yield to maturity if the one-year interest rate next year turns out to be (i) 8%, (ii) 10%, (iii) 12%?
A two-year bond with par value $1,000 making annual coupon payments of $100 is priced at $1,000. What is the yield to maturity of the bond? What will be the realized compound yield to maturity if the one-year interest rate next year turns out to be (i) 8%, (ii) 10%, (iii) 12%?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 11P
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- A two-year
bond with par value $1,000 making annual coupon payments of $100 is priced at $1,000. What is the yield to maturity of the bond? What will be the realized compound yield to maturity if the one-year interest rate next year turns out to be (i) 8%, (ii) 10%, (iii) 12%? -
Consider the following $1,000 par value zero-coupon bonds.
Bond
Years until maturity
Yield to maturity
A
1
5.0%
B
2
6.0%
C
3
6.5%
D
4
7.0%
According to the expectation hypothesis, what is the market’s expectation of the yield curve one year from now? Specifically, what are the expected values of next year’s yield on bonds with maturities of (i) 1 year; (ii) 2 years; (iii) 3 years?
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