1)How much would an investor lose if she purchased a 30-year zero-coupon bond wi
ID: 2700384 • Letter: 1
Question
1)How much would an investor lose if she purchased a 30-year zero-coupon bond with a $ 1,000 par value and 10% yield to maturity, only to see market interest rates increase to 12% one year later?
the Right answer for this question is 19.93 Not 23.92
How can i solve the problem to get 19.93?
2)Suppose you pay $9,600 for a $10,000 Treasury bill maturing in four months. What is the effective annual rate of return for this investment? This is not a TIPS bill, but inflation is 4.5%.
And right answer for this problem is 13% how can i solve the problem to get 13%
Explanation / Answer
1) price of bond = present value of par value on bond = par value/(1+int rate)^no of years = 1000/(1+0.1)^30 = 57.30
selling price = 1000/1.12^29= 37.38
loss = 57.30-33.38 = 19.93
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