Coupon Bonds problem

Question 5 8 pts Assume four Coupon Bonds each with a face value of 1,000 all selling at par, of one, two, three, and four years maturity with annual coupons of 6%, 6.5%, 7.2%, and 9.5%, respectively. Assume these bonds are risk-free. (a) [4 points] What is the Macaulay Duration of the two-year Coupon Bond? (b) [4 points] You want to invest 1 Mio. in risk-free assets one year from now. The term of the investment will be for one year. What transaction must you undertake today to lock in the forward rate, that is the interest rate of a 1-year Zero-Coupon Bond one year from now? (Hint: Consider a standard arbitrage pricing approach that we used during the lecture.) (c) [4 points] What is the implied forward rate, i.e. the interest rate of a 1-year Zero-Coupon Bond one year from now? Question 5 8 pts Assume four Coupon Bonds each with a face value of 1,000 all selling at par, of one, two, three, and four years maturity with annual coupons of 6%, 6.5%, 7.2%, and 9.5%, respectively. Assume these bonds are risk-free. (a) [4 points] What is the Macaulay Duration of the two-year Coupon Bond? (b) [4 points] You want to invest 1 Mio. in risk-free assets one year from now. The term of the investment will be for one year. What transaction must you undertake today to lock in the forward rate, that is the interest rate of a 1-year Zero-Coupon Bond one year from now? (Hint: Consider a standard arbitrage pricing approach that we used during the lecture.) (c) [4 points] What is the implied forward rate, i.e. the interest rate of a 1-year Zero-Coupon Bond one year from now