Since the price of the 2–year coupon Treasury security is equal to par, the above sum must equalthe bond price which is $100. Therefore,1.95(1.0150)1+1.95(1.0165)2+1.95(1.017527)3+101.95(1 +z4)4= 100The solution isz4=.019582 =1.9582%. Doubling this yield, we obtain the theoretical 2–year spotrate bond-equivalent yield of3.9164%.Q9–The plot represents the term structure of default–free spot rate for maturities up to 2 years.Based on the limited data provided, what can you say the slope of the yield curve? (5pts.)
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Q10–Note:The coupon rate and the discount rate are the same in this problem..06×$1,0002= $30Determine the present value of the coupon payments. (5pts.).03
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The above number tells us how much the coupon payments contribute to the bond’s value.Determine the contribution of the bond’s maturity value to the bond’s value. (5pts.)
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Determine the type of the bond. (5pts.)
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Determine the price of this bound after 18 and 30 months respectively. (5pts.)
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