# Bond Valuation With a Non-Flat Term Structure

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 ad1c9bdddfhttps://brainmass.com/business/bond-valuation/bond-valuation-non-flat-term-structure-166862

#### Solution Preview

Solution:

a. Present value of first year's cash flow = 6 x .97 = 5.82

Present value of second year's cash flow = ...

#### Solution Summary

This posting gives the solution to the given Bond Valuation question.

$2.19