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    Description of Bond valuation

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    4. Suppose the current zero coupon yield curve for risk free bonds is as follows:
    Maturity (years) 1 2 3 4 5
    YTM 5.00% 5.50% 5.75% 5.95% 6.05%

    a. What is the price per $100 face value of a two year, zero coupon, risk free bond?
    b. What is the price per $100 face value of a four year, zero coupon, risk free bond?
    c. What is the risk free interest rate for a five year maturity?

    9. Suppose a seven year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%
    a. Is this bond currently trading at a discount, a par, or at a premium? Explain.
    b. If the yield to maturity of the bond rises to 7.00% (APR with semiannual compounding) what price will the bond trade for?

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    Solution Preview

    ** The detailed answers are in the attached Excel file **

    -------------------------------------
    4. Suppose the current zero coupon yield curve for risk free bonds is as follows:

    Maturity (years) 1 2 3 4 5
    YTM 5.00% 5.50% 5.75% 5.95% 6.05%

    a. What is the price per $100 face value of a two year, zero coupon, risk free bond?
    Yield= 5.50%
    Face Value= $100
    Term to maturity= 2 years

    Price= $89.85 =100/(1+0.055)^2

    b. What is the price per $100 face value of a four year, zero coupon, risk free bond?

    Yield= 5.95%
    Face Value= $100
    Term to ...

    Solution Summary

    Bond prices for different yields to maturity have been calculated.

    $2.19

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