Prices of zero-coupon bonds reveal the following pattern of forward rates: Year Forward Rate 1 5% 2 6 3 8 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: What is the price of the coupon bond? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. What is the yield to maturity of the coupon bond? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. 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. If you forecast that the yield curve in 1 year will be flat at 7.0%, 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.
Prices of zero-coupon bonds reveal the following pattern of forward rates:
| Year | Forward Rate |
|---|---|
| 1 | 5% |
| 2 | 6 |
| 3 | 8 |
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:
-
What is the price of the coupon bond?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
-
What is the yield to maturity of the coupon bond?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
-
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.
-
If you
forecast that the yield curve in 1 year will be flat at 7.0%, what is your forecast for the expectedrate 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.
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