50.
What would the yield to maturity be on a four-year zero-coupon bond purchased today?
51.
Calculate the price at the beginning of year 1 of an 8% annual coupon bond with face
value $1,000 and 5 years to maturity.
52.
Given the yield on a 3-year zero-coupon bond is 7% and forward rates of 6% in year 1 and
6.5% in year 2, what must be the forward rate in year 3?
53.
What should the purchase price of a 1-year zero-coupon bond be if it is purchased today
and has face value of $1,000?
54.
What should the purchase price of a 2-year zero-coupon bond be if it is purchased today
and has face value of $1,000?
55.
What should the purchase price of a 3-year zero-coupon bond be if it is purchased today
and has face value of $1,000?
56.
What should the purchase price of a 4-year zero-coupon bond be if it is purchased today
and has face value of $1,000?
57.
What should the purchase price of a 5-year zero-coupon bond be if it is purchased today
and has face value of $1,000?
58.
What is the yield to maturity of a 1-year bond?
59.
What is the yield to maturity of a 5-year bond?
60.
What is the yield to maturity of a 4-year bond?
61.
What is the yield to maturity of a 3-year bond?
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62.
What is the yield to maturity of a 2-year bond?
Short Answer Questions
63.
Discuss the theories of the term structure of interest rates. Include in your discussion the
differences in the theories, and the advantages/disadvantages of each.
64.
Term Structure of Interest Rates is the relationship between what variables? What is
assumed about other variables? How is term structure of interest rates depicted
graphically?
65.
Although the expectations of increases in future interest rates can result in an upward
sloping yield curve; an upward sloping yield curve does not in and of itself imply the
expectations of higher future interest rates. Explain.
66.
Explain what the following terms mean: spot rate, short rate, and forward rate. Which of
these is(are) observable today?
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67.
Answer the following questions that relate to bonds.
A 2-year zero-coupon bond is selling for $890.00. What is the yield to maturity of this
bond?
The price of a 1-year zero-coupon bond is $931.97. What is the yield to maturity of this
bond?
Calculate the forward rate for the second year.
How can you construct a synthetic one-year forward loan (you are agreeing now to loan in
one year)? State the strategy and show the corresponding cash flows. Assume that you
can purchase and sell fractional portions of bonds. Show all calculations and discuss the
meaning of the transactions.
