2. Below is a list of five $1,000 par value zero-coupon bonds. Bond Years to Maturity Yield to Maturity ABCDE Α 1 5.00% В 2 6.00% 3 7.00% Ꭰ 4 8.00% 5 9.00% 1) What is the forward 1-year interest rate four years from now? 2) If liquidity premiums are ignored, at what price shall bond C sell for one year from now? (keep two decimals in the final answer) 3) If your investment horizon is three years and you plan to invest in a bond that allows your position free from interest rate risk, which bond would you buy? What risks do you still face in this investment?

2. Below is a list of five $1,000 par value zero-coupon bonds. Bond Years to Maturity Yield to Maturity ABCDE Α 1 5.00% В 2 6.00% 3 7.00% Ꭰ 4 8.00% 5 9.00% 1) What is the forward 1-year interest rate four years from now? 2) If liquidity premiums are ignored, at what price shall bond C sell for one year from now? (keep two decimals in the final answer) 3) If your investment horizon is three years and you plan to invest in a bond that allows your position free from interest rate risk, which bond would you buy? What risks do you still face in this investment?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 4MC

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