Suppose you observe the following prices for zero-coupon bonds (pure discount bonds)
that have no risk of default:
Maturity Price per $1 of Face Value Yield to Maturity
1 year 0.97 3.093%
2 years 0.90
a. What should be the price of a 2-year coupon bond that pays a 6% coupon rate, assuming
coupon payments are made once a year starting one year from now?
b. Find the missing entry in the table.
c. What should be the yield to maturity of the 2-year coupon bond in Part a?
d. Why are your answers to parts b and c of this question different?© BrainMass Inc. brainmass.com June 3, 2020, 9:07 pm ad1c9bdddf
a. Present value of first year's cash flow = 6 x .97 = 5.82
Present value of second year's cash flow = ...
This posting gives the solution to the given Bond Valuation question.