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The following table summarizes prices of various default-free zero-coupon bonds ($100 face value): Maturity (years) 1 2 3 4 5 Price (per $100 face value)
The following table summarizes prices of various default-free zero-coupon bonds ($100 face value):
Maturity (years) | 1 | 2 | 3 | 4 | 5 |
Price (per $100 face value) | $95.8995.89 | $91.4291.42 | $86.7486.74 | $81.9881.98 | $76.91 |
a. Compute the yield to maturity for each bond.
b. Plot the zero-coupon yield curve (for the first five years).
c. Is the yield curve upward sloping, downward sloping, or flat?
Note: Assume annual compounding.
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