Question Suppose that the zero-coupon bond prices for one-year, two-year, three-year of maturities are given by 0.97, 0.92, 0.88, respectively. Assume that the bond price has volatility 0.1. Calculate the price of a one-year, European call option on a zero-coupon bond that matures at time 3 (year) with strike price 0.99.

Question Suppose that the zero-coupon bond prices for one-year, two-year, three-year of maturities are given by 0.97, 0.92, 0.88, respectively. Assume that the bond price has volatility 0.1. Calculate the price of a one-year, European call option on a zero-coupon bond that matures at time 3 (year) with strike price 0.99.

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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Netflux is selling for $105 a share. A Netflux call option with one month until expiration and an exercise price of $121 sells for $2.30 while a put with the same strike and expiration sells for $17.40. a. What is the market price of a zero-coupon bond with face value $121 and 1-month maturity? (Round your answer to 2 decimal places.) Market price b. What is the risk-free interest rate expressed as an effective annual yield? (Round your answer to 2 decimal places.) Risk-free interest rate
You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year zero-coupon bond 4-year zero-coupon bond Effective Annual Required A Required B YTM Required: a. If you believe that the term structure next year will be the same as today's, calculate the return on (1) the 1-year zero and (ii) the 4- year zero. b. Which bond provides a greater expected 1-year return? 8.3% 8.4 8.5 8.6 Complete this question by entering your answers in the tabs below. One year return on 1-year bond One year return on 4-year bond If you believe that the term structure next year will be the same as today's, calculate the return on (i) the 1-year zero and (ii) the 4-year zero. Note: Do not round intermediate calculations. Round your answers to 1 decimal place. % %
The term structure for zero-coupon bonds is currently: Maturity (Years) YTM (%) 1 4.6% 5.6 6.6 2 3 Next year at this time, you expect it to be: Maturity (Years) 2 YTM (%) 5.6% 6.6 7.6 Required: a. What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? b. Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? c. Is the market's expectation of the return on the 3-year bond greater or less than yours? Complete this question by entering your answers in the tabs below. Required A Required B Required C Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? Note: Round your answers to 2 decimal places. Maturity 1 2 YTM % %
Suppose a ten-year, $1,000 bond with a 8.9% coupon rate and semiannual coupons is trading for$1,035.32. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.4% APR, what will be the bond's price? The bond's yield to maturity is ______%. (Round to two decimal places.)
Suppose you observe the following zero - coupon bond prices per $1 of maturity payment: 0.96154 (1-year), 0.91573 (2-year), 0.87630(3-year), 0.82270 (4- year), 0.77611 (5-year). What is the par coupon rate for the 4-year bond? Question 3 options: 3.999834% 4.488965% 4.492350 % 4.957679 % 5.144082%
Assume that the real risk-free rate is 2.4% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5.6% and a 2-year Treasury bond yields 6.3%. Calculate the yield using a geometric average. What is the 1-year interest rate that is expected for Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2. The difference is due to the inflation rate reflected in the two interest rates. The inflation rate reflected in the interest rate on any security is the average rate of inflation expected over the security's life. The difference is due to the real risk-free rate reflected in the two interest rates. The real risk-free rate reflected in the interest rate on any security is the…
You find a zero coupon bond with a par value of $10,000 and 19 years to maturity. The yield to maturity on this bond is 4.7 percent. Assume semiannual compounding periods. What is the price of the bond? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
4
If the yield to maturity for a two year zero coupon bond is 5.8% and the yield to maturity for a 3 year zero coupon bond is 6.1%, what is the implied future short rate from year 2 to 3 (use 5 decimal places, write 3.333% as .03333)? QUESTION 5 Price a 5 year 4% semiannual coupon bond if the yield to maturity is 6% (write the price as if par is 100, use 5 decimal places)
QUESTION 1 If the yield to maturity for a one year zero coupon bond is 5.2% and the yield to maturity for a 2 year zero coupon bond is 5.8%, what is the implied future short rate from year 1 to 2 (use 5 decimal places, write 3.333% as .03333)?
Suppose the interest rate on a 1-year T-bond is 2.60% and that on a 2-year T-bond is 4.50%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.30% for a 2-year bond. What is the equilibrium market forecast for 1-year rates 1 year from now? a. 4.7333% b. 5.1110% c. 5.2676% d. 5.5463% e. 5.8250%. Only typing answer Please explain step by step

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