Homework Help is Here – Start Your Trial Now!
Business
Finance
In a market where spot rates apply, the two-year forward rate of interest at time t = 1 is 6% per annum effective. The issue price per £100 nominal of a two-year fixed interest bond that pays annual coupons of 4% in arrears and is redeemed at 105% is £95.5. At the same time, the issue price per £100 nominal of a three-year fixed interest bond that pays 6% in arrears and is redeemed at par is £98.5. (i) Calculate all possible annual spot-rates. (ii) Calculate the three-year par yield.

In a market where spot rates apply, the two-year forward rate of interest at time t = 1 is 6% per annum effective. The issue price per £100 nominal of a two-year fixed interest bond that pays annual coupons of 4% in arrears and is redeemed at 105% is £95.5. At the same time, the issue price per £100 nominal of a three-year fixed interest bond that pays 6% in arrears and is redeemed at par is £98.5. (i) Calculate all possible annual spot-rates. (ii) Calculate the three-year par yield.

Essentials Of Investments
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
icon
Related questions
Question

Using formulas, no tables

correct answers: 

i) i1= 7.3746% pa

   i2= 8.981% pa 

   i3= 6.4562% pa

ii) i(c3)= 6.5764% pa

In a market where spot rates apply, the two-year forward rate of interest at time t = 1 is 6% per annum effective. The issue price per £100 nominal of a two-year fixed interest bond that pays annual coupons of 4% in arrears and is redeemed at 105% is £95.5. At the same time, the issue price per £100 nominal of a three-year fixed interest bond that pays 6% in arrears and is redeemed at par is £98.5. (i) Calculate all possible annual spot-rates. (ii) Calculate the three-year par yield.
Transcribed Image Text:In a market where spot rates apply, the two-year forward rate of interest at time t = 1 is 6% per annum effective. The issue price per £100 nominal of a two-year fixed interest bond that pays annual coupons of 4% in arrears and is redeemed at 105% is £95.5. At the same time, the issue price per £100 nominal of a three-year fixed interest bond that pays 6% in arrears and is redeemed at par is £98.5. (i) Calculate all possible annual spot-rates. (ii) Calculate the three-year par yield.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
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…
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