Question
1. Assume that the yields to maturity for an 1-year 10% coupon bond and an 2-year 13% coupon bond are 12% and 15%, respectively. Both
1. Assume that the yields to maturity for an 1-year 10% coupon bond and an 2-year 13% coupon bond are 12% and 15%, respectively. Both bonds have face values of $1,000. (Assume that the coupon payment is made annually.)
(a) Calculate the price?for each of the bonds. (Keep 2 decimal places)
1-year bond:
2-year bond:
(b) Calculate the 1-year and 2-year spot rates. (Keep 4 decimal places)
1-year spot rate s1:
2-year spot rate s2:
(a) Calculate the quasi-modified duration for each of the bonds. (Keep 2 decimal places)
1-year bond:
2-year bond:
2. Assume that the 1-year zero-coupon bond is sold at $87.23, and the yields to maturity for the coupon bonds selling at market prices equal to their face values are 14% and 16% for 1-year and 1.5-year issues respectively. Coupons are paid every 6 months and face values are $100 for all the bonds.
(a) Calculate the spot rate curve (s0.5, s1, s1.5). (Keep 4 decimal places)
s0.5: s1: s1.5 :
(b) Compute the quasi-modified duration for each of these bonds. (Keep 2 decimal places.)
Zero-coupon bond:
14% coupon bond:
16% coupon bond:
(c) Determine the current price of an 10% coupon bond with face value $100 and 18 months to maturity.
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