413.9
9.You open the paper and see that the yield curve currently shows the following:
Maturity of Cash flow |
Interest Rate |
1 yr |
5% |
2 yrs |
6% |
3 yrs |
7% |
a. What should be the price of a three year $1000 par bond with 8% annual coupons? (6)
b.Is this bond selling at a premium or a discount? (4)
c.Why is this bond selling at a premium or a discount? (5)
d.What, approximately, is the yield-to-maturity on this bond? DO NOT calculate the YTM, just be as precise as you can, giving me a range, and/or telling me approximately what rate it will be. Explain your reasoning. (6)