Question
Assume the zero-coupon yields on default-free securities are as summarized in the following table:(Click on the following icon in order to copy its contents into
Assume the zero-coupon yields on default-free securities are as summarized in the following table:(Click on the following icon
in order to copy its contents into a spreadsheet.)
Maturity (years) | 1 | 2 | 3 | 4 | 5 |
Zero-coupon YTM | 4.00% | 4.30% | 4.50% | 4.70% | 4.80% |
Consider a five-year, default-free bond with annual coupons of
5%
and a face value of
$1,000.
a. Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain.
b. What is the yield to maturity on this bond?
c. If the yield to maturity on this bond increased to
5.20%,
what would the new price be?
Question content area bottom
Part 1
a. Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain.
The bond is trading at
a discount
par
a premium
because its yield to maturity is a weighted average of the yields of the zero-coupon bonds.(Select from the drop-down menu.)
Part 2
b. What is the yield to maturity on this bond?
The yield to maturity on this bond is
enter your response here%.
(Round to three decimal places.)
Part 3
c. If the yield to maturity on this bond increased to
5.20%,
what would the new price be?
The new price would be
$enter your response here.
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