PROMISE I WILL LIKE 2. Assume the current yield curve for default-free zero-coupon bonds is...
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PROMISE I WILL LIKE
2. Assume the current yield curve for default-free zero-coupon bonds is as follows: Maturity (Years) YTM (%) 1 5 2 6 3 7 4 8 Starting from year 4, the yield curve is flat at 8% for all the longer (longer than 4 years) maturities. Based on the above yield curve, calculate & Answer i). If you invest $100 today, what is the final wealth in the end of year 1, year 2, and year 3, respectively? (6 Marks) ii). What is the implied one-year forward rate starting at the beginning of year 1, year 2, and year 3, respectively? (6 Marks) iii). A default free bond with 8.5% coupon making annual payment, $1000 par value that matures in 4 years is n ewly issued to the market, what should the bond price be if it is correctly priced? What is the yield to maturity for the bond? (6 marks)
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