Problem 2. (10 points) Throughout the remainder of this exam, you should use the following information on the current (1-0) yield curve. That is, unless stated otherwise, soe the information below for calculating any values or yields needed in any of the subsequent Problems in this exam Today (5/27/22), the prices on zero-coupon US Treasury STRIPS are as follow Maturity In years Price (per $100 in face value Effective Anal TIM 1 98.50 [100% 4550-101528 95.20 100/05-20 %102490 91.75 (100/46)^(1/7-1-0.02911 87.34 (100/6741/4-103501 82.19 (100/82.145)-1 0.400 Question: Calculate the yields to maturity for each of these sero? Fill in the banks above (102 points each Show your work below: 2 3 4 Problem 4 (12 points-4 points each part) There is a 5-year corporate bond currently trading in the market thut pays a 5 percent coupon with (for simplicity) coupon payments made once a year at the end of the year with the next coupon paid exactly one year from now). The current price of this bond is $1000 a What would be the price of this bond if the market considered this corporation to be free of default risk? Hit: what would the value of the bond be based on the yield curve on eros given in Problem 2 above? At the price the corporate bond would be it where default free e, your answer to part a above), its effective annual yield to maturity should be 03895156 actual market value of 53020s actual yield to maturity higher, tower, or equal to SAMN 100% Cindedne than 23 gher than 3.890N Explain why he Assume that at a price of $3020, the yied to maturity 4544% hy the saying it is, re just telling you to ASSUME that it o. Based on a recovery +, what does the market think the probability of default on this corporate bond? am not of 80% Probability of Default- Show your work below Problem 2. (10 points) Throughout the remainder of this exam, you should use the following information on the current (1-0) yield curve. That is, unless stated otherwise, soe the information below for calculating any values or yields needed in any of the subsequent Problems in this exam Today (5/27/22), the prices on zero-coupon US Treasury STRIPS are as follow Maturity In years Price (per $100 in face value Effective Anal TIM 1 98.50 [100% 4550-101528 95.20 100/05-20 %102490 91.75 (100/46)^(1/7-1-0.02911 87.34 (100/6741/4-103501 82.19 (100/82.145)-1 0.400 Question: Calculate the yields to maturity for each of these sero? Fill in the banks above (102 points each Show your work below: 2 3 4 Problem 4 (12 points-4 points each part) There is a 5-year corporate bond currently trading in the market thut pays a 5 percent coupon with (for simplicity) coupon payments made once a year at the end of the year with the next coupon paid exactly one year from now). The current price of this bond is $1000 a What would be the price of this bond if the market considered this corporation to be free of default risk? Hit: what would the value of the bond be based on the yield curve on eros given in Problem 2 above? At the price the corporate bond would be it where default free e, your answer to part a above), its effective annual yield to maturity should be 03895156 actual market value of 53020s actual yield to maturity higher, tower, or equal to SAMN 100% Cindedne than 23 gher than 3.890N Explain why he Assume that at a price of $3020, the yied to maturity 4544% hy the saying it is, re just telling you to ASSUME that it o. Based on a recovery +, what does the market think the probability of default on this corporate bond? am not of 80% Probability of Default- Show your work below
