Interest Rates HW After the most recent Federal Reserve meeting the yield on U.S

Question

Interest Rates HW After the most recent Federal Reserve meeting the yield on U.S. Treasury zero coupon bonds is as follows Assume these are the annual yields on bonds with a face value of $1,000 paid at maturity. Based on these zero coupon bonds, what is the interest rate for the third year? Assume the spot rate for the fourth year is 1.80%. What is the yield on the 4-year zero? What is the effective yield on a 10-year bond paying interest semi-annually with a nominal annual yield of 2.34%? What is the price of the 3-year zero coupon bond? The price is below the face value. Hence the bond is often called a discount bond. How large in dollars and cents is this discount? How many dollars of interest are paid over the life of the bond? How many dollars are interest on interest? What would be the price of a 3-year bond with a face value of $1,000 (paid at maturity) and an annual coupon payment of 2% of face? Assuming no change in the yield curve (spot rate for each year remains at the spot rate we observe today), what will be the price of the bond after the first annual coupon payment? After the second annual coupon payment? After the third annual coupon payment before the principal payment? Spot interest rates increase by 10 basis points in each year. What happens to the price of the bond in question 5? What single constant interest rate would equate the price of the bond (calculated in question 5) and the present value of the bond's cash flow?

Explanation / Answer

1) Interest rate for 3rd Year = (1+0.91%)^3/(1+0.79%)^2 -1

Interest rate for 3rd Year = 1.15%

2) Yield on 4-Year Zero =( (1+0.91%)^3*(1+1.80%))^(1/4) - 1

Yield on 4-Year Zero = 1.13%

3) Effective Annual yield = (1+2.34%/2)^2 - 1

Effective Annual yield = 2.35%

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.