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Svetradugi [14.3K]
3 years ago
12

The YTM on a 2 year zero coupon bond is 5% and the YTM on a 1 year zero coupon bond is 3%. What does the no-arbitrage condition

tell you about the rate you can lock in today on a 1 year safe loan that starts next year (the one-year forward rate)?
Business
1 answer:
tresset_1 [31]3 years ago
7 0

Answer:

<em>$111.11 or 111.11% of face value</em>

Explanation:

Assuming the face value of $100 for all bonds (without loss of generality)

If the two year coupon bond is repackaged as a one year zero coupon bond paying $12 after one year and another two year bond paying $112 after 2 years, the price of the two zero coupon bonds are given as

Price of one year Zero coupon bond = 12/1.05 = $11.43 (one year ZCB has YTM of 5%)

Price of two year Zero coupon bond = 112/1.06^2 = $99.68 (two year ZCB has YTM of 6%)

So, one can sell the repackaged bonds at a price = $11.43+ $99.68 = $111.11 or 111.11% of face value

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Answer:

The amount of the allowance for the year to be reported in income statement is $6,500.

Explanation:

The amount of the allowance for the year to be reported in income statement can be calculated as follows:

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Lady bird [3.3K]

Answer:

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Explanation:

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See full question below

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<span>Who is better off: a person using credit cards or a person refraining from any loans? A person using credit cards is better off </span>from a person refraining from any loans. A person using credit can often purchase more and have more flexibility with their money over someone who only uses cash. There are items and services that do not take cash as a form of payment, so without a credit card the person can not make the purchase. 
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