The price at issue of a 3-year fixed interest bond with 6.6% annual interest and redeemable at 103% in a specific market where spot rates are in effect is £115 for every nominal £100. Furthermore, the 1-year forward rate at time t=3 is 6.3% pa, and the 3-year spot rate is 7.9% pa. Therefore, compute the 4-year par yield in this market at time t=0, no tables, only formulas, correct answer=4.36757
The price at issue of a 3-year fixed interest bond with 6.6% annual interest and redeemable at 103% in a specific market where spot rates are in effect is £115 for every nominal £100. Furthermore, the 1-year forward rate at time t=3 is 6.3% pa, and the 3-year spot rate is 7.9% pa. Therefore, compute the 4-year par yield in this market at time t=0, no tables, only formulas, correct answer=4.36757
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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The price at issue of a 3-year fixed interest bond with 6.6% annual interest and redeemable at 103% in a specific market where spot rates are in effect is £115 for every nominal £100.
Furthermore, the 1-year forward rate at time t=3 is 6.3% pa, and the 3-year spot rate is 7.9% pa. Therefore, compute the 4-year par yield in this market at time t=0, no tables, only formulas, correct answer=4.36757
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