An insurance company invests in two $100 par value bonds with 5% annual coupons and each maturing at par. The one year spot rate is 2.00%. The price and term of each bond is as follows: Bond I: Term 2 years, price 103.87 Bond II: Term 3 years, price = 104.32 Let s, be the 2 year spot rate and s, be the 3 year spot rate implied by those bond prices. Calculate s2 + S3. A 6.5% 5-3% 2.3% D. 4.8% E 7.1%

An insurance company invests in two $100 par value bonds with 5% annual coupons and each maturing at par. The one year spot rate is 2.00%. The price and term of each bond is as follows: Bond I: Term 2 years, price 103.87 Bond II: Term 3 years, price = 104.32 Let s, be the 2 year spot rate and s, be the 3 year spot rate implied by those bond prices. Calculate s2 + S3. A 6.5% 5-3% 2.3% D. 4.8% E 7.1%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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