Question

Consider three bonds a,b and c. Face value of each bond is 1,000 and maturity is two years. Bond a is a zero coupon bond redeemable at face value bond b is a par bond with annual coupons. Bond c is an annuity with two equal payments at the end of each of two years, quoting at par. The annual spot rates are s01 = 10% and s02=15% calculate the ytm of each bond.

Answer 1

Answer:

To figure the price you should pay for a zero-coupon bond, you'll follow these steps: Divide your required rate of return by 100 to convert it to a decimal. Add 1 to the required rate of return as a decimal. Raise the result to the power of the number of years until the bond matures

There are two ways of looking at bond yields - current yield and yield to maturity. This is is the annual return earned on the price paid for a bond. It is calculated by dividing the bond's coupon rate by its purchase price. For example, let's say a bond has a coupon rate of 6% on a face value of Rs 1,000.

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