Question
Assume that the spot rate for the first year, the forward rate for the second year and the forward rate for the third year are
Assume that the spot rate for the first year, the forward rate for the second year and the forward rate for the third year are 4.2%, 4.4% and 4.5% respectively. What must the price of a 3 year government non-callable bond with an annual coupon of 6 % be.
Bond | Coupon Rate | Maturity | Market Price |
A | 3% paid annually | 1 year | $998.06 |
B | 4% paid annually | 2 years | $1011.49 |
C | 7% paid annually | 3 years | $1094.68 |
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International financial management
Authors: Jeff Madura
12th edition
1133947832, 978-1305195011, 978-1133947837
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