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Consider the following scenarios for a zero-coupon, one-year bond with a $100 face value. a) The yield is 6.3%. What is the market price of
Consider the following scenarios for a zero-coupon, one-year bond with a $100 face value. a) The yield is 6.3%. What is the market price of this bond? Is this bond priced at discount, par, or premium? b) Now you observe that the bond price changes to $90. What might have caused this price change (from that in (a))? What is the new yield? Did the yield go up or down? c) Now assume the bond has a coupon rate of 5% and the coupon would be paid 1 year from now. What would its price be under the yield found in (b)
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