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In December 2020, the prices of two zero-coupon bonds are as follows: Maturity Price Dec-22 84.18 Dec-23 75.83 Each bond makes a single payment of
In December 2020, the prices of two zero-coupon bonds are as follows:
Maturity | Price |
Dec-22 | 84.18 |
Dec-23 | 75.83 |
Each bond makes a single payment of 100 at maturity. Suppose that you expect to receive 1,000 in December 2022 and plan to invest it for one year till December 2023. Show that you can use the above two zero-coupon bonds to lock in a rate of return for your investment between December 2022 and December 2023.
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