Prices of zero-coupon bonds reveal the following pattern of forward rates: Year 1 2 3 Forward Rate 8% 11 13 In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $55 with par value $1,000. Required: a. What is the price of the coupon bond? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the yield to maturity of the coupon bond? Note: 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? Note: 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 8.0%, what is your forecast for the expected rate of return on the coupon bond for the 1-year holding period? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is not complete. $ 952.95 X 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
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Prices of zero-coupon bonds reveal the following pattern of forward rates:
Year
1
2
3
Forward Rate
8%
11
13
In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $55 with par value
$1,000.
Required:
a. What is the price of the coupon bond?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
b. What is the yield to maturity of the coupon bond?
Note: 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?
Note: 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 8.0%, what is your forecast for the expected rate of return on the coupon
bond for the 1-year holding period?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Answer is not complete.
$ 952.95 x
a. Price
b. Yield to maturity
c. Realized compound yield
d. Holding period return
%
%
%
Transcribed Image Text:Prices of zero-coupon bonds reveal the following pattern of forward rates: Year 1 2 3 Forward Rate 8% 11 13 In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $55 with par value $1,000. Required: a. What is the price of the coupon bond? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the yield to maturity of the coupon bond? Note: 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? Note: 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 8.0%, what is your forecast for the expected rate of return on the coupon bond for the 1-year holding period? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is not complete. $ 952.95 x a. Price b. Yield to maturity c. Realized compound yield d. Holding period return % % %
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