In a particular market, the 1-year and 2-year forward rates at time t = 1 are 8.5% per annum and 11% per annum, respectively. In the same market, the issue price of a 2-year fixed interest stock, paying coupons of 9% annually in arrears and redeemed at 106%, is £105 per £100 nominal. Calculate, to 5 decimal places, the following: (i) All the possible spot rates. (ii) The 1-year forward rate at time t = 2 (iii) The 3-year par yield.
In a particular market, the 1-year and 2-year forward rates at time t = 1 are 8.5% per annum and 11% per annum, respectively. In the same market, the issue price of a 2-year fixed interest stock, paying coupons of 9% annually in arrears and redeemed at 106%, is £105 per £100 nominal. Calculate, to 5 decimal places, the following: (i) All the possible spot rates. (ii) The 1-year forward rate at time t = 2 (iii) The 3-year par yield.
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
Related questions
Question
Solve it using formulas, no tables
correct answers are:
i) i1= 0.08225 pa
i2= 0.08362 pa
i3= 0.10067 pa
ii) f(2,1) = 0.13558 pa
iii) i(c3) = 0.09901 pa
Transcribed Image Text:In a particular market, the 1-year and 2-year forward rates at time t = 1 are 8.5% per annum
and 11% per annum, respectively.
In the same market, the issue price of a 2-year fixed interest stock, paying coupons of 9%
annually in arrears and redeemed at 106%, is £105 per £100 nominal.
Calculate, to 5 decimal places, the following:
(i)
All the possible spot rates.
(ii)
The 1-year forward rate at time t = 2
(iii)
The 3-year par yield.
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