QUESTION 6A.B.Maturity(years)1D.23$114.51$113.45$112.508Spotrate(%)$120.541.251.50192-yearsfromnow1.908Using the spot rates, what would be the valueof an option-free bond that pays 6% annualcoupon? Par value is $100.1-yearForwardrate (%)1.704910-yearsfromnow1.251-yearfromnow1.75Cashflow$3$3$103

A bond is a debt instrument that provides capital to the companies from investors rather than traditional institutions. A feature of the bonds is that they are tradeable on the market. The value of the option-free bond comes out to be Value of bond = ∑iCouponi1+rateii+Face value1+rateNN= 6%×$1001+0.01251+6%×$1001+0.0150192+6%×$1001+0.01704913+$1001+0.01704913= $61.0125+$61.03026357+$61.05202427+$1001.05202427= $5.926+$5.824+$5.703+$95.055= $112.508 The value of the option-free bond is $112.508. Therefore, the correct answer is option C.

Answered: QUESTION 6 Matur ity (year 1 2 3 A. O…

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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