Question

Fill in the table below for the following zero-coupon bonds, all of which have par values of $1,000. Assume annual compounding. (Round your answers to 2 decimal places. Omit the "$" and "%" signs in your response.) Price Bond-Equivalent Yield to Maturity Maturity (years) A A 400 500 500 A A A 00 000 A 400

Answer 1

Zero -coupon Bonds:

a bond that only issue deep discount with the face value but no interest.

YTM = (Facevalue /current price of bond)^(1/years of maturity)-1

YTM = (1000/ 400)^ (1/20)-1

= (2.5)^(1/20)-1

=4.63%

YTM =(1000/500)^(1/20)-1

=(2)^(1/20)-1

=3.5%

YTM = (1000/500)^(1/10)-1

= (2)^(1/20)-1

= 7.05%

The formula for price = M / (1+i)^n

M= maturity or facevalue

i= required interest yield divided by 2

n= years until maturity times 2

Price	maturity	Bond-Equivalent Yield to Maturity
400	20	4.63
500	20	3.5
500	10	7.05
376.89	10	10
456.39	10	8
400	11.68	8

Here,annual compound rate is taken as double the time of YTM rate as an assumption.(i.e)9.26% ., 7%, 14.10%.,20%., 16%.,16%.

Answer 2

you're wrong