exercise:C563b4e9e1: Difference between revisions

Latest revision as of 00:27, 5 December 2023

The Wall Street Journal gives the following prices for zero coupon bonds (with a principal of 100):

Compute the yield to maturity of a 2-year coupon bond with a principal of 100 and a coupon rate of 4.25%. Assume annual coupon payments.

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

@@ Line 1: / Line 1: @@
-'''Solution: C'''
+The Wall Street Journal gives the following prices for zero coupon bonds (with a principal of 100):
-<math display = "block">\begin{gathered}r_1=\frac{110}{106.8}-1=3.00 \% \\ 101.93=\frac{5}{1+r_1}+\frac{105}{\left(1+r_2\right)^2} \Rightarrow r_2=4.00 \% \\ 111.31=\frac{10}{1+r_1}+\frac{10}{\left(1+r_2\right)^2}+\frac{110}{\left(1+r_3\right)^3} \Rightarrow r_3=6.00 \%\end{gathered}</math>
+{| class="table"
+|-
+!Bond !! Maturity Year !!Price
+|-
+|A ||1 ||95.92
+|-
+|B ||2 ||92.01
+|-
+|C ||3 ||87.00
+|}
-And the forward rate from year 1 to year 2 equals:
+Compute the yield to maturity of a 2-year coupon bond with a principal of 100 and a coupon rate of 4.25%. Assume annual coupon payments.
-<math display = "block">f_2=\frac{\left(1+r_2\right)^2}{1+r_1}-1=5.0 \%</math>
+<ul class="mw-excansopts">
+<li>4%</li>
+<li>4.25%</li>
+<li>4.5%</li>
+<li>4.75%</li>
+<li>5%</li>
+</ul>
 '''References'''
 {{cite web |url=https://alo.mit.edu/wp-content/uploads/2015/06/PS_Part1.pdf |last1=Lo |first1=Andrew W. |last2 = Wang | first2 = Jiang |website=alo.mit.edu | title = MIT Sloan Finance Problems and Solutions Collection Finance Theory I | access-date=November 30, 2023}}