Question
1. Assume there are four risk-free bonds with the following characteristics, where coupons are paid out once per year: Bond Current Price Time to Maturity
1. Assume there are four risk-free bonds with the following characteristics, where coupons are paid out once per year: Bond Current Price Time to Maturity Coupon rate A $925.93 1 0 B $969.51 2 10 C $746.91 3 3 D $779.64 4 7 1.1. Plot the term structure of interest1. [0.8 point] 1.2. Assume there is also a 4 year bond with coupon rate of 9%. What should be its market price? [0.8 points] 1.3. Estimate the yield to maturity of the bond described in part (1.2) using the triangle method. [1.2 points] 1.4. Compute the duration of the bond described in part (1.2). [1.2 points]
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