Question
The table below shows market prices for four zero coupon bonds with four different terms: one, two, three, and four years. The bonds all have
The table below shows market prices for four zero coupon bonds with four different terms: one, two, three, and four years. The bonds all have a face value of $1,000. Which line best represents the yield curve derived from the bond prices in the table? Use the letter labels at the end of each line. (hint, compute the yield for each bond)
Zero Coupon Bond Prices
Term (years) 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1 2 3 4 Price ($) 970.8738 933.5107 888.9964 822.7025 2 Yield Curve Term 3 A B Term (years) 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1 2 3 4 Price ($) 970.8738 933.5107 888.9964 822.7025 2 Yield Curve Term 3 A B
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