Bond valuation in class exercises

Bond valuation in class exercises - Bond valuation in class...

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Bond valuation in class exercises
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uppose the yield curve is flat at 6% Suppose the yield curve is flat at 6%. • Find the value of a 5 year US treasury ero oupon bond with $1000 par value zero-coupon bond with $1000 par value
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V = 1000 / (1+6%) 5 747 26 PV = 1000 / (1+6%) =747.26 • What is the value of a 8 year zero-coupon ond? bond? • PV = 1000/ (1+6%) 8 = 627.41
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• Find the value of a 4 year US treasury zero- coupon bond with $1000 par value
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V = 1000 / (1+5 5%) 4 807 21 PV = 1000 / (1+5.5%) = 807.21
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ow does the value of a 4- ear bond How does the value of a 4 year bond compare to that of a 5-year bond? ear bond has higher value because – 4-year bond has higher value, because • 4-year bond is discounted at a lower rate - ear bond has shorter maturity 4 year bond has shorter maturity
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pward sloping yield curve Upward sloping yield curve – Longer maturity bonds have lower value than horter maturity ones shorter maturity ones • Flat yield curve ame as above – Same as above • Inverted yield curve – Ambiguous
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uppose the yield Rating 1 yr
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This document was uploaded on 10/21/2010.

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Bond valuation in class exercises - Bond valuation in class...

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