Assume the yields to maturity of one-year and two-year zero coupon bonds are 2% and...
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Accounting
Assume the yields to maturity of one-year and two-year zero coupon bonds are 2% and 3%, respectively. The Treasury plans to issue a two-year maturity coupon bond, with a coupon rate of 4%, annually paid. The par value of the bond is $1,000.
a) At what price will the coupon bond sell ?
b) What is going to be the coupon bonds yield to maturity ?
c) Assuming the expectations hypothesis, what is the coupon bonds expected price next year (right after the receipt of the first coupon)?
d) How would you answer part (c) assuming a constant liquidity premium of 1% ?
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