Quiz_03BondsandLoans

Quiz_03BondsandLoans - interest on the loan Can you offer...

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UGBA103-F08 Monday, 03 Oct-2008 Quiz II: Bonds and Loans UGBA 103 1. A one year zero coupon bond is selling for $93.00 A two year zero coupon bond is selling for $81.00 (both bonds have face value $100). What is the price of a two year, 6% coupon bond (also with face value $100), that makes annual coupon payments? Please write your answer in the box. 2. You work at a bank and a corporate client approaches you to secure loan terms for the future. Precisely, he is interested in a one year loan starting two years from now. The 2 year spot rate is at 5%. The three year spot rate is at 5.5%. Your client does not want to pay more than 6%
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Unformatted text preview: interest on the loan. Can you offer him this deal without destroying value for your bank? 3. Compute the year-1 and year 2- spot rates given the bond prices of two government bonds. Both bonds offer a coupon rate of 5%. The bond with one year maturity trades at 100, the two year bond trades at 98.2115. Assume annual coupon payments. Answer to #3: ____________________ Name: ________________ SID # : ________________ Section Number _________ Answer to #1: ____________________ Answer to #2: ____________________...
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