Suppose that the current 6-month, 1-year, 1.5-year and 2-year interest rates are 2.2%, 3%, 3.5% and 3.75%, respectively. a) Calculate the prices of 1-year and 2-year Treasury bonds. In each case, assume the face value of £100 and the coupon rate of 5% per annum and that coupons are paid annually. Assume continuous compounding. b) Calculate the prices of the bonds from a), applying annual discounting. Compare your results to those obtained in a).
Suppose that the current 6-month, 1-year, 1.5-year and 2-year interest rates are 2.2%, 3%, 3.5% and 3.75%, respectively. a) Calculate the prices of 1-year and 2-year Treasury bonds. In each case, assume the face value of £100 and the coupon rate of 5% per annum and that coupons are paid annually. Assume continuous compounding. b) Calculate the prices of the bonds from a), applying annual discounting. Compare your results to those obtained in a).
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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Suppose that the current 6-month, 1-year, 1.5-year and 2-year interest rates are 2.2%,
3%, 3.5% and 3.75%, respectively.
a) Calculate the prices of 1-year and 2-year Treasury bonds. In each case, assume the
face value of £100 and the coupon rate of 5% per annum and that coupons are
paid annually. Assume continuous compounding.
b) Calculate the prices of the bonds from a), applying annual discounting. Compare
your results to those obtained in a).
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