Answered: The spot rates for a zero coupon bond…

The spot rates for a zero coupon bond are as follows: 1 year 5% 2 year 5.5% 3 year 6% What is the value of the bond today, its face value is $1000, and pays annual coupons with a rate of 6%

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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Question

The spot rates for a zero coupon bond are as follows:

1 year 5%

2 year 5.5%

3 year 6%

What is the value of the bond today, its face value is $1000, and pays annual coupons with a rate of 6%

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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