Question
Consider the following risk-free coupon bonds available for sale in the bond market (assume annual coupons): Maturity date Ask Price (per $100 of face value
Consider the following risk-free coupon bonds available for sale in the bond market (assume annual coupons):
| Maturity date | Ask Price (per $100 of face value | Coupon rate (in %) |
| 1 year | 100.0040 | 0.125% |
| 2 years | 101.2100 | 2% |
| 3 years | 101.2140 | 1.625% |
- Construct the term structure of interest rates for these three periods.
- Your company plans to issue three-year to maturity coupon bonds. You plan to issue bonds priced at par (i.e. price = face value). At what level should you plan to set the coupon on your bond to justify this price? (Hint: use the term structure rates for discounting).
- Suppose that your company decides to issue three-year zero-coupon bonds instead of coupon bonds. At what price should your company sell these zero-coupon bonds?
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Financial Literacy For Young Adults Simplified Discover How To Manage Save And Invest Money To Build A Secure And Independent Future
Authors: Raman Keane
1st Edition
8399806501, 979-8399806501
