{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Assignment 3

# Assignment 3 - ActSc 371 Assignment#3 Posted November 2...

This preview shows pages 1–2. Sign up to view the full content.

ActSc 371: Assignment #3 Posted: November 2, 2005 Due: In class, November 11, 2005 (no electronic submission) Late Assignments Will Not Be Accepted Question 1 You observe the following prices for zero-coupon bonds (each has a face value of \$100). Maturity Price 1 Year 92.5926 2 Years 84.1680 3 Years 75.1315 (a) What are the one, two and three-year spot rates? (b) What are the one-year forward rates over the second and third years? (c) What should the price of a three-year bond with a 10% annual coupon (\$1000 face value) be? (d) Suppose the market price of a three-year bond with a 10% annual coupon (\$1000 face value) was actually \$1020.00. If this price disagrees with the price you found in (c), describe a strategy which would allow you to profit from this mispricing. Your strategy should put money in your pocket today and entail net cash flows of zero in future years. You should: State which bonds (and how many of each) you would purchase. State which bonds (and how many of each) you would sell short. Show all cash flows associated with your strategy.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern