Bond 1 matures in two years and pays an annual coupon (at the end of the year) of 1%. The face value is $1,000. Bond 2 matures in two years and pays an annual coupon (at the end of the year) of 20%. The face value is $1,000. For both the market price of the bond is equal to the present value of the promised cash flows discounted using the appropriate rates of the yield curve for the zero-coupon bonds. Shown below TTM --- Zero YTM 1 .03 2 .05 1. The market risk is neutral, what does the market expect the 1-year zero YTM will be next year? Calculate the forward rate for the one year zero YTM next year. 2. Given the price of Bond A is the present value of the promis
Bond 1 matures in two years and pays an annual coupon (at the end of the year) of 1%. The face value is $1,000.
Bond 2 matures in two years and pays an annual coupon (at the end of the year) of 20%. The face value is $1,000.
For both the market price of the bond is equal to the
TTM --- Zero YTM
1 .03
2 .05
1. The market risk is neutral, what does the market expect the 1-year zero YTM will be next year? Calculate the forward rate for the one year zero YTM next year.
2. Given the price of Bond A is the present value of the promised cash flows using the current zero yield curve, what is the YTM of Bond 1?
3. What about Bond 2?
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