Question

Assuming that the market is arbitrage-free, if a three-month zero-coupon bond yields 2.25 percent sign, a six-month zero-coupon bond yields 2.45 percent sign, a nine-month zero-coupon bond yields 2.95 percent sign, and a one-year zero-coupon bond yields 3.35 percent sign. What should the price of a one-year $ 1000 space space space 5 percent signpar-value bond with quarterly coupons

Answer 1

Answer:

The answer is 1016.69

Explanation:

Solution

Given that:

Coupon payment = 1000 * 0.05 / 4 = 12.5

Now,

The cash flow at

                                    Rate          Discount factor

3 months = 12.5          2.25%       1/1 + (0.0225/4) =0.9944

6 months = 12.5          2.45%       0.9897

9 months = 12.5          2.95%       0.9789

I year       = 12.5           3.35%       0.9676

Now,

The present value =

12 .5 * ( 0.9944 + 0.9897 +0.9789)

+

1012 * (0.9676 = 1016.69