Corporate Finance

Assume zero-coupon yields on default-free securities are as summarized in the following table:

Maturity (years) 1 2 3 4 5

Zero-coupon YTM_n 4.00% 4.30% 4.50% 4.70% 4.80%

1. What is the price of a three-year, default-free security with a face value of $1000 and an annual coupon rate of 4%? What is the yield to maturity for this bond?

2. Consider a four-year, default-free security with annual coupon payments and a face value of $1000 that is issued at par. What is the coupon rate of this bond?