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Description of Bond valuation

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?

Solution Preview

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

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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?
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