hree Zero Coupon Bonds (ZCB) are issued on the market. They each have face value of £100 and maturity, respectively, of 1 year, 3 years and 4 years. Assume the first bond is sold for £99.01, the second one for £92.86 and the third one for £88.85. a) Find the annual effective yields of all three bonds. b) (Determine the term structure of forward rates associated with these bonds. c) An investor must pay £1,500 after four years. How much do they need to put aside at the end of the first year, if they decide to invest in the market?
hree Zero Coupon Bonds (ZCB) are issued on the market. They each have face value of £100 and maturity, respectively, of 1 year, 3 years and 4 years. Assume the first bond is sold for £99.01, the second one for £92.86 and the third one for £88.85. a) Find the annual effective yields of all three bonds. b) (Determine the term structure of forward rates associated with these bonds. c) An investor must pay £1,500 after four years. How much do they need to put aside at the end of the first year, if they decide to invest in the market?
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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Three Zero Coupon Bonds (ZCB) are issued on the market. They each have face value of £100 and maturity, respectively, of 1 year, 3 years and 4 years. Assume the first bond is sold for £99.01, the second one for £92.86 and the third one for £88.85.
a) Find the annual effective yields of all three bonds.
b) (Determine the term structure of forward rates associated with these bonds.
c) An investor must pay £1,500 after four years. How much do they need to put aside at the end of the first year, if they decide to invest in the market?
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