### Zero-Coupon Yield Table and PricingAssume the zero-coupon yields on default-free securities are as summarized in the following table:| Maturity (years) | Zero-coupon YTM ||------------------|------------------|| 1 | 6.10% || 2 | 6.50% || 3 | 6.70% || 4 | 7.10% || 5 | 7.30% |**Problem:**What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000?**Solution:**Calculate the present value of the security using the given zero-coupon yield for a 5-year maturity.\[ \text{Present Value} = \frac{\text{Face Value}}{(1 + \text{YTM})^n} \]Where YTM is 7.30% (or 0.073) and $ n $ is 5 years.**Enter the price below:**The price is $______. (Round to the nearest cent.)

Bonds refer to the instruments that are issued by a company for raising debt capital from non-traditional sources such as investors. Bonds are tradeable on the market because the ownership of bonds is transferable for the entire term before the maturity date.The price of the security comes out to beThe price of the security is $721.74.The price of the security is $721.74.

Business

Finance

Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 6.10% 2 6.50% Zero-coupon YTM What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000? The price is $ (Round to the nearest cent.) (...) 3 6.70% 4 7.10% 5 7.30%

Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 6.10% 2 6.50% Zero-coupon YTM What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000? The price is $ (Round to the nearest cent.) (...) 3 6.70% 4 7.10% 5 7.30%

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

See similar textbooks

Similar questions

2
Interest rates on 4-year Treasury securities are currently 5.85%, while 6-year Treasury securities yield 7.85%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places.
A particular security's default risk premium is 4 percent. For all securities, the inflation risk premium is 3.65 percent and the real risk- free rate is 2.50 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security's equilibrium rate of return. (Round your answer to 2 decimal places.) > Answer is complete but not entirely correct. Rate of return 8.65%
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2022. All of the bonds have a par value of $1,000 and pay semiannual coupons. Rate ?? 6.252 6.163 Maturity Month/Year May 36 May 41 May 51 Bid 103.5462 104.4952 ?? Asked 103.6340 104.6409 ?? Change Ask Yield +.3015 2.329 +.4293 +.5405 ?? 4.031 In the above table, find the Treasury bond that matures in May 2036. What is the coupon rate for this bond? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Suppose the quoted futures price for delivery in 1 year is $7.10. The current underlying price is $7 and the continuously compounded interest rate is 5%. The underlying does not pay dividends. How could you make a riskless arbitrage profit? Question 2Answer a. buy futures contracts, short sell the stock and invest in a bank account b. borrow from the bank to buy futures contracts and short sell the stock c. sell futures contracts, borrow and buy the stock d. sell future contacts, short sell the stock and invest in a bank account
Recall that on a one-year Treasury security the yield is 5.6100% and 6.7320% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.15%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) a 9.6049% b 6.4285% c 8.6217% d 7.5629% Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.) a 5.46% b 6.45% c 6.53% d 6.61%
Consider a bond with a face value of $1,000 that sells for an initial price of $700. It will pay no coupons for the first nine years and will then pay 11% coupons for the remaining 29 years. Choose an equation showing the relationship between the price of the bond, the coupon (in dollars), and the yield to maturity. O A. B. O C. O D. 700 = 700 = 700 = 700 = 110 110 9 (1+i)⁹ (1+i)⁹+1 + 110 + i) ⁹ + 1 (1 + 1,000 (1+i) 29-9 1,000 (1 + i) 9 +29 + +...+ 110 (1+i) 9+2 + 110 (1 + i)9+29-1 110 + (1 + i) ⁹ + 110 (1+i)9 +29 9+29-1 + 110 (1 + i)9 +29 + 1,000 (1+i) 9+29
Recall that on a one-year Treasury security the yield is 4.0000% and 5.4000% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.4%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 6.8509% 6.0096% 7.6322% 5.1082%
Consider a coupon bond, period t = 0 price $900, with payments: t=0 1 2 3 50 50 1050 Discount (zero coupon) bonds of 1, 2 and 3 years maturity (all with maturity value of $1000) sell for respectively, 960, 900, 820 dollars. Is this coupon bond properly priced? If not, design an arbitrage argument to profit by the mispricing.
Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Bond B According to the expectations 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 yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) с D YTM(%) 5.1% Years to Maturity 1 2 3 6.1 6.6 7.1 YTM (%) % % %
Suppose that ABC bank decides to purchase a T-note and convert it into a STRIP. The T-note has a maturity of 6 years, pays a 6% coupon rate (semiannual) and a face value of $10,000. How many separate securities can be created? O 6 O 12 O 13
The market wide discount rates are known to be 0.96 for 1-year and 0.90 for 2- years. You observe that a two-year zero-coupon bond with a face value of £250 trades at £230 and a 1-year zero coupon bond with a face value of £150 trades at £142. What trading strategy do you implement (there is no need to calculate the number or values of the bonds traded) and what do you expect the outcome of this strategy to be if it is mimicked by other institutions in the bond market?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS