Question
You are considering investing in a 12% coupon rate bond with annual coupons, a three-year maturity and a face value of 1000. You observe the
You are considering investing in a 12% coupon rate bond with annual coupons, a three-year maturity and a face value of 1000. You observe the following prices for discount, or zero-coupon, bonds:
| Time of maturity | 1 year | 2 year | 3 year |
| Price | 97.85 | 93.23 | 86.98 |
(a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What does the market expect the 1 year rate to be in 1 year from now? (d) What does the market expect the 1 year rate to be in 2 years from now? (e) What does the market expect the 2 year rate to be in 1 year from now?
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Production And Operations Analysis
Authors: Steven Nahmias
6th Edition
0073377856, 9780073377858
