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Calculate the current price of a government bond

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Reference no: EM133062390

Question - Here is the list of government zero-coupon bond (invoice) prices with different maturities:

Maturity

(Invoice) Price

One year

$993.0217

Two years

$978.8188

Three years

$967.0194

Four years

$948.7170

Five years

$931.1732

Six years

$911.2364

Seven years

$901.0145

Required -

1. Calculate the current price of a government bond with a face value of $1000 and a coupon rate of 7%. It is an annual coupon bond that matures in 5 years.

2. Calculate the current bond price issued by Suncor Energy if it has a face value of $1000 and a coupon rate of 7%. It matures in 5 years. Use the following table to find the default risk premium. (Assume the default risk is not a function of maturity).

Reference no: EM133062390

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