Fixed Income Hw1

Fixed Income Hw1 - Siming Zhu September 9, 2008 AEM 4260...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Siming Zhu September 9, 2008 AEM 4260 – Fixed Income Homework #1 Chapter 1: Q5, 6, 20 5. What is the cash flow of a seven-year bond that pays no coupon interest and has a par value of $10,000? A seven-year bond that pays no coupon interest is effectively a zero-coupon bond. If held to maturity, the only cash flow stemming from a seven-year zero-coupon bond will be equal to its par value of $10,000. However, if the holder of the bond chooses to sell the bond prior to its maturity, then he will face interest rate risk. The cash flow from the seven-year zero coupon bond may be less than or equal to the par value of $10,000, depending on the required yield in the market at the time of sales. 6. Give three reasons why the maturity of a bond is important. The maturity of a bond is important for three main reasons. First, the term to maturity of a bond indicates the time period over which the bondholder can expect to receive interest payments.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/20/2009 for the course AEM 4260 taught by Professor Bogan,v. during the Fall '06 term at Cornell.

Ask a homework question - tutors are online