1. The following table provides zero coupon bond yields. Maturity Bond equivalent yield 6 months 6%...
1. The following table provides zero coupon bond yields.
|
Maturity |
Bond equivalent yield |
|
|
6 months |
6% |
|
|
1 year |
8% |
A 12% coupon bond with coupons paid semiannually matures in one year. The par value of the bond is $1,000. What is the price of this bond? [First identify the cash flows.]
|
A. $1,030 |
||
|
B. $1,032 |
||
|
C. $1,034 |
||
|
D. $1,038 |
2. The following are the prices of zero coupon bonds. Par value is $1,000 in each case.
|
Maturity |
Price |
|
6 months |
$998 |
|
I year |
$995 |
What is the forward rate (expressed as BEY) for a six month period six months hence? [First compute the semiannual yield for each bond.]
|
A. Approximately 4% |
||
|
B. Approximately 5% |
||
|
C. Approximately 6% |
||
|
D. Approximately 7% |
3. The term bootstrapping is used to describe:
|
A. The computation of spot rates from coupon bond yields |
||
|
B. Computing the tax exemp yield from taxable yields |
||
|
C. Adjustung the bind u=yields for default risk |
||
|
D. Obtaining the long term rates from forward rates, |
Homework Answers
2. B. Approximately 5%
3. bootstrapping is used to describe Obtaining the long term rates from forward rates
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1. The following table provides zero coupon bond yields.
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