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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
See Also This Related BrainMass Solution

Bond Valuations Calculations

See attached file. Use only excel functions. Provide response on sheet 2.

Compute:
a) Value using the price function.
b) Current yield.
c) Yield to maturity using the yield function.
d) Yield to first call using the yield function.
e) Value using the PV function.
f) Yield to maturity using the rate function.
g) Yield to first call using the rate function.

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