Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows:

Question

Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) Yield to Maturity 4.21% 4.56% 4.89% 5.28% 5.54% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 5-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? The price is s. (Round to the nearest cent.)

Explanation / Answer

a) The face value = 100/1.0489^3 = $           86.66 b) The face value = 100/1.0528^4 = $           81.40 c) Risk free rate for a 5 year maturity = 5.54%

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