Prices of zero-coupon bonds reveal the following pattern of forward rates: Year 1 2 3 Forward Rate 6% 8 9 In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $75 with par value $1,000. a. What is the price of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the yield to maturity of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Under the expectations hypothesis, what is the expected realized compound yield of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. If you forecast that the yield curve in 1 year will be flat at 9.0%, what is your forecast for the expected rate of return on the coupon bond for the 1-year holding period? (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. Price b. Yield to maturity c. Realized compound yield d. Holding period return % % %
Prices of zero-coupon bonds reveal the following pattern of forward rates: Year 1 2 3 Forward Rate 6% 8 9 In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $75 with par value $1,000. a. What is the price of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the yield to maturity of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Under the expectations hypothesis, what is the expected realized compound yield of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. If you forecast that the yield curve in 1 year will be flat at 9.0%, what is your forecast for the expected rate of return on the coupon bond for the 1-year holding period? (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. Price b. Yield to maturity c. Realized compound yield d. Holding period return % % %
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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Transcribed Image Text:Prices of zero-coupon bonds reveal the following pattern of forward rates:
Year
123
Forward Rate
6%
8
9
In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $75 with
par value $1,000.
a. What is the price of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
b. What is the yield to maturity of the coupon bond? (Do not round intermediate calculations. Round your answer to
2 decimal places.)
c. Under the expectations hypothesis, what is the expected realized compound yield of the coupon bond? (Do not
round intermediate calculations. Round your answer to 2 decimal places.)
d. If you forecast that the yield curve in 1 year will be flat at 9.0%, what is your forecast for the expected rate of return
on the coupon bond for the 1-year holding period? (Do not round intermediate calculations. Round your answer to 2
decimal places.)
a. Price
b. Yield to maturity
c. Realized compound yield
d. Holding period return
%
%
%
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