### Educational Content on Zero-Coupon Yield Curve for Risk-Free Bonds#### Yield Curve OverviewSuppose the current zero-coupon yield curve for risk-free bonds is as follows:| Maturity (years) | Yield to Maturity ||------------------|-------------------|| 1 | 4.45% || 2 | 4.80% || 3 | 5.06% || 4 | 5.25% || 5 | 5.38% |#### Key Questionsa. **What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond?**b. **What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond?**c. **What is the risk-free interest rate for a 3-year maturity?****Note:** Assume annual compounding.#### Calculation Inputsa. **3-Year Bond Price Calculation Prompt:**- The price is $__________. (Round to the nearest cent.)b. **4-Year Bond Price Calculation Prompt:**- The price is $__________. (Round to the nearest cent.)c. **3-Year Maturity Risk-Free Rate Prompt:**- The risk-free rate is __________%. (Round to two decimal places.)---This educational material invites learners to apply their understanding of bond pricing and yield to maturity in the context of zero-coupon bonds. The task requires calculating bond prices and yield rates based on provided data, encouraging practical application of theoretical concepts.

Price of zero coupon bond is calculated as follows:-Price of zero coupon bond = where,r= yield to maturityn= time period Maturity Value = $100r= yield to maturity= 5.06% = 0.0506n= time period = 3 yearPrice of zero coupon bond =Price of zero coupon bond =Price of zero coupon bond =Price of zero coupon bond =86.23584248799508price per $100 face value of a 3-year, zero-coupon, risk-free bond is $86.24 (rounded to nearest cent)Maturity Value = $100r= yield to maturity= 5.25% = 0.0525n= time period = 4 yearPrice of zero coupon bond =Price of zero coupon bond =Price of zero coupon bond =Price of zero coupon bond =85.76965960243332price per $100 face value of a 4-year, zero-coupon, risk-free bond is $85.77 (rounded to nearest cent)The risk-free rate of a zero coupon bond wil be nothing but the yield to maturity of the bond. yield to maturity of the bond with maturity of 3 years = 5.06%The risk-free interest rate for a 3-year maturity is 5.06%. price per $100 face value of a 3-year, zero-coupon, risk-free bond is $86.24price per $100 face value of a 4-year, zero-coupon, risk-free bond is $85.77The risk-free interest rate for a 3-year maturity is 5.06%.

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Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: (Click on the following icon in order to copy its contents into a spreadsheet.) 3 Maturity (years) 1 4.45% 5.06% Yield to Maturity a. What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond? b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 3-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond? The price is $. (Round to the nearest cent.) b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? The price is $. (Round to the nearest cent.) c. What is the risk-free interest rate for a 3-year maturity? 2 4.80% 5.25% 5 5.38%

Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: (Click on the following icon in order to copy its contents into a spreadsheet.) 3 Maturity (years) 1 4.45% 5.06% Yield to Maturity a. What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond? b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 3-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value of a 3-year, zero-coupon, risk-free bond? The price is $. (Round to the nearest cent.) b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? The price is $. (Round to the nearest cent.) c. What is the risk-free interest rate for a 3-year maturity? 2 4.80% 5.25% 5 5.38%

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

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Please answer all 4 prices with explanations thx
Please answer 6D.
Suppose the term structure of interest rate is flat. Consider the following four bonds: Bond Term to Maturity (year) Coupon rate YTM 1 5 10% 7% 2 3 7 7 10% O a. 2,3,4,1 O b. 2,1,4,3 O c. 1,2,3,4 O d. 4,3,2,1 3% 3% 7% 4 7 If the yield-to-maturity for all bonds changes by 1%, rank the bonds from the lowest percentage change in price to the largest percentage change in price based on duration approximation. 7% 5%
10) Suppose a coupon bond with 10 years remaining to maturity is reported to have a duration equal to 6.7 years. Assuming a current interest rate of 9% and an estimated decrease in the interest rate to 8.8%, calculate the estimated percentage increase in the bond's price. Hint: Duration= a) 3.3% b) 2.7% c) 1.2% d) 0.6% %AP Ai/(1+io)
2. Consider a 15-year semiannual floating rate bond with coupon rate determined with the following formula: Coupon rate = reference rate + 65bps What’s the discount margin of the bond if the bond price is 99.5730 and current reference rate is 9%?
1) Explain the concept of interest rate risk in bond investment 2) show a numerical example of it by calculating % changes in price for 1 year and 3-year annual coupon bonds. Assume coupon interest rate = 12%, Yield to Maturity = 6%, Face value= 100. Use 2% increase in YTM (i.e., 6% → 8%).
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Data table ↑ The current zero-coupon yield curve for risk-free bonds is as follows: What is the price per $100face value of a two-year, zero-coupon, risk-free bond? The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) YTM 1 4.98% 2 5.48% 3 5.78% Print Done 4 5 5.96% 6.09% (Round to the nearest cent.) - X
1. How to calculate the value of a 6 year 2% coupon bond with semiannual payments, 1000 par. Expected return is the risk free rate of 3%. 2. 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)
The term structure for zero-coupon bonds is currently: Maturity (Years) YTM (%) 1 5.2% 2 6.2 3 7.2 Next year at this time, you expect it to be: Maturity (Years) YTM (%) 1 6.2% 2 7.2 3 8.2 Required: What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? 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? Is the market's expectation of the return on the 3-year bond greater or less than yours?
4.
(i) Two types of risks faced by bodholders are interest rate risks and default risks? What are interest rate risks and default risks, and why might a bond exhibit more or less of these risks? (ii) You see a bond with the following characteristics: bond matures in 10 years coupon rate = 7% APR compounded semi-annually, paid semi-annually face value = $1000 bond price = $900 What is the yield to maturity (YTM) of this bond, stated as an APR with semi-annual compounding?

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