How would you find the price of this floating rate bond:

26 year floating rate bond that pays a quarterly coupon equal to the floating rate minus a 1% spread.

We know that there is a 26 year zero coupon bond that is $90.00

There is also a bond paying a 1% quarterly coupon with price 98.

Please show steps, Thank you.

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Hubert KochLv2

17 Nov 2018

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Question 3. (10 points) You want to buy a 3 year bond with a coupon rate of 22%, annual coupons, and a
face value of 1000. You know that 1 year zero coupon bonds (ZCBs) trade a yield to maturity of 12%, 2
year ZCBs trade at a yield to maturity of 9%, and 3 year ZCBs trade at a yield to maturity of 7.5%.
(a) What is the price of this 3 year 22% coupon rate bond?
(b) What is the yield to maturity on this 3 year 22% coupon rate bond?
(c) What does the market expect the rate on a 1-year zero coupon bond will be two years from now
(what is the implied forward rate)?
(d) What does the market expect the rate on a 2-year zero coupon bond will be one year from now?
(e) Assume you buy the coupon bond and then you decide you do not need money until the end of
three years. As a result, when you receive the coupons in years 1 and 2, you will reinvest them at
the prevailing market rate (assume these will be the forward rates you calculated in parts c and d).
How much money will you have at the end of the 3 years? What rate of return will you receive on
your investment?

indigohornet580

1. You have a ten year bond that you purchased for $1000, it has a face value of $1000 and a coupon rate of 10% a. What is the yield to maturity? b. Is it selling for face value or at a discount or at a premium? 2. One year later you want to sell the bond in number 1. The market yield for that type of bond is now 13%. a. What will happen to the price of that bond? Will it go up or down? b. Is it selling for face value or at a discount or at a premium? 3. What is a zero coupon bond? Explain how investors get their return 4. What is difference between Muni Bonds and Corporate Bonds? 5. What is a general obligation bond? A revenue bond? 6. There is a bond that pays a 12% coupon, has three years left to maturity, a face value of $1,000 and market yields are 10%. What is the price this bond should sell for? What is the current yield? 7. A two year bond that yields 10% has a coupon rate of 10% a. What is the price this bond will sell for? (Hint you do not need to do any math here) b. What is the dollar value of the coupon that is paid? c. What is the price it should pay for if the market yields now drop to 8%?

The yield to maturity on 1-year zero-coupon bonds is currently 6%; the YTM on 2-year zeros is 7%. The Treasury plans to issue a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 8%. The face value of the bond is $100.

a) At what price will the bond sell?
b) What will the yield to maturity on the bond be?
c) If the expectations theory of the yield curve is correct, what is the market expectation of the price that the bond will sell for next year?
d) Recalculate your answer to (c) if you believe in the liquidity preference theory and you believe that the liquidity premium is 2.5%.

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