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6. Suppose that there are three zero-coupon bonds, each with a face value of $100 and no default risk.The 1-yr bond has a price of
6. Suppose that there are three zero-coupon bonds, each with a face value of $100 and no default risk.The 1-yr bond has a price of $94, the 2-yr bond at $90 and the 3-yr bond at $83.
a. What are their spot yields, their yields to maturity?
b. What is the price of a 3-yr default-free bond with a 5% annual coupon?
c. What is the forward rate on a 1-yr zero coupon bond 2 years from now?
d. What is the term premium embedded in the forward rate if the expected rate is 8%?
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