Question 2 (2 points) The Government of Canada 2-year coupon bond has a face value of $1,000 and pays annual coupons of $30. The next coupon is due in one year. The one- and two-year spot rates on Government of Canada zero coupon bonds are 6% and 7%. Use this information to answer the following 2 questions. 1) What is the expected one-year spot rate in year 2? (Starting one year from today known as E(k1)). Select one option from a) to e) 2) What is the expected price for the coupon bond at year one (after the first coupon is paid)?. Select one option from d) to h) О a) 7% b) 7.3% ☐ c) 8% ☐ d) 8.5% ☐ e) 7% ☐ f) $953.62 О g) $962.53 ☐ h) $976.30 ☐ i) $980.95 ☐ j) $1,009.54 Question 1 (1 point) The prices of a number of $1,000 (face value) zero coupon bonds are provided in the table below. Compute the yields on the zero coupon bonds. Plot the yield curve. What is the shape of the yield curve? Maturity Price Yield 1 year $965.35 k1 2 years $923.24 k₂ 3 years $885.25 k3 4 years $822.10 k₁ upward sloping downward sloping v-shaped flat
Question 2 (2 points) The Government of Canada 2-year coupon bond has a face value of $1,000 and pays annual coupons of $30. The next coupon is due in one year. The one- and two-year spot rates on Government of Canada zero coupon bonds are 6% and 7%. Use this information to answer the following 2 questions. 1) What is the expected one-year spot rate in year 2? (Starting one year from today known as E(k1)). Select one option from a) to e) 2) What is the expected price for the coupon bond at year one (after the first coupon is paid)?. Select one option from d) to h) О a) 7% b) 7.3% ☐ c) 8% ☐ d) 8.5% ☐ e) 7% ☐ f) $953.62 О g) $962.53 ☐ h) $976.30 ☐ i) $980.95 ☐ j) $1,009.54 Question 1 (1 point) The prices of a number of $1,000 (face value) zero coupon bonds are provided in the table below. Compute the yields on the zero coupon bonds. Plot the yield curve. What is the shape of the yield curve? Maturity Price Yield 1 year $965.35 k1 2 years $923.24 k₂ 3 years $885.25 k3 4 years $822.10 k₁ upward sloping downward sloping v-shaped flat
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:Question 2 (2 points)
The Government of Canada 2-year coupon bond has a face value of $1,000 and pays annual coupons of $30.
The next coupon is due in one year. The one- and two-year spot rates on Government of Canada zero coupon
bonds are 6% and 7%. Use this information to answer the following 2 questions.
1) What is the expected one-year spot rate in year 2? (Starting one year from today known as E(k1)). Select
one option from a) to e)
2) What is the expected price for the coupon bond at year one (after the first coupon is paid)?. Select one
option from d) to h)
О
a) 7%
b) 7.3%
☐ c) 8%
☐ d) 8.5%
☐ e) 7%
☐ f) $953.62
О
g) $962.53
☐ h) $976.30
☐ i) $980.95
☐
j) $1,009.54
Transcribed Image Text:Question 1 (1 point)
The prices of a number of $1,000 (face value) zero coupon bonds are provided in the table below. Compute
the yields on the zero coupon bonds. Plot the yield curve. What is the shape of the yield curve?
Maturity
Price
Yield
1 year
$965.35
k1
2 years
$923.24
k₂
3 years
$885.25
k3
4 years
$822.10
k₁
upward sloping
downward sloping
v-shaped
flat
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