The one, two, thee, and four year spots rates are currently 2.9%, 3.4%, 3.9%, and 4.4%, respectively. Ophelia purchases a four-year, 1000-par bond that pays annual coupons of 50 and is priced according to this yield curve. One year later, immediately after receiving the first coupons,
The one, two, thee, and four year spots rates are currently 2.9%, 3.4%, 3.9%, and 4.4%, respectively. Ophelia purchases a four-year, 1000-par bond that pays annual coupons of 50 and is priced according to this yield curve. One year later, immediately after receiving the first coupons,
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:The one, two, thee, and four year spots rates are currently 2.9%,
3.4%, 3.9%, and 4.4%, respectively. Ophelia purchases a four-year,
1000-par bond that pays annual coupons of 50 and is priced
according to this yield curve.
One year later, immediately after receiving the first coupons,
Ophelia sells the bond for a price consistent with the yield curve at
that time. The one, two, thee, and four year spots rates at that time
are currently 3.7%, 4.2%, 4.7%, and 5.2%, respectively.
Calculate the annual effective yield earned by Ophelia.
4.01%
3.45%
○ 3.64%
3.26%
3.82%
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