What is a zero-coupon bond? What is the value of a zero-coupon bond with a par value of £100 that matures in 10 years with a yield to maturity of 5% per annum?
What is a zero-coupon bond? What is the value of a zero-coupon bond with a par value of £100 that matures in 10 years with a yield to maturity of 5% per annum?
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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![a) What is a zero-coupon bond? What is the value of a zero-coupon bond with a par value of £100 that
matures in 10 years with a yield to maturity of 5% per annum?
b) The dirty price of an 8%, 2-year bond with a face value of £100 that pays annually purchased 50 days
after a coupon date is £97.30. Answer the following questions with this information.
(i) What is the accrued interest on this bond for 50 days?
(ii) If you hold this bond to maturity, what is the annual capital gain as a percent of the clean
price?
S]
(iii) What is the yield to maturity for this bond? Hint: The yield on the bond is that discount rate
that makes the present value of the bond equal to its dirty price.
c) The term structure of spot yields is given by the following schedule
Maturity (Years)
Rate (per annum)
0.72%
1
2
3
4
0.81%
1.02%
1.23%
Answer the following questions:
(i) What is the price of a £100, 4-year, 5% coupon bond?
(ii) What is the yield to maturity of a £100, 2-year, 10% coupon bond?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3d49a1bf-def0-472f-94db-660c9693a140%2F4cd8853b-7507-4622-a4ee-2177dc2e1cb3%2Fjxpqma9_processed.png&w=3840&q=75)
Transcribed Image Text:a) What is a zero-coupon bond? What is the value of a zero-coupon bond with a par value of £100 that
matures in 10 years with a yield to maturity of 5% per annum?
b) The dirty price of an 8%, 2-year bond with a face value of £100 that pays annually purchased 50 days
after a coupon date is £97.30. Answer the following questions with this information.
(i) What is the accrued interest on this bond for 50 days?
(ii) If you hold this bond to maturity, what is the annual capital gain as a percent of the clean
price?
S]
(iii) What is the yield to maturity for this bond? Hint: The yield on the bond is that discount rate
that makes the present value of the bond equal to its dirty price.
c) The term structure of spot yields is given by the following schedule
Maturity (Years)
Rate (per annum)
0.72%
1
2
3
4
0.81%
1.02%
1.23%
Answer the following questions:
(i) What is the price of a £100, 4-year, 5% coupon bond?
(ii) What is the yield to maturity of a £100, 2-year, 10% coupon bond?
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