Calculate the implied forward rates in economy

Reference no: EM131947424

A six-month zero-coupon bond with face value $100 sells for $99.46, a one-year zerocoupon bond sells for $97.23, and an 18-month zero-coupon bond sells for $90.50. Suppose a new coupon bond, making semi-annual coupon payments, is issued today with face value $100, maturity of 18 months, and a semi-annual coupon payment of 9% (the 9% is expressed as an annual rate).

(a) Calculate the no-arbitrage price of the coupon bond today.

(b) Calculate the implied forward rates in this economy.

(c) If the liquidity preference theory is correct and there exists a liquidity premium of 0.5% per period, what is the market’s expectation of the rice the bond will sell for in one year? 1 year = 2 periods here.

Reference no: EM131947424

Questions Cloud

Fiscal policy consists of using government spending : Fiscal policy consists of using government spending and/or taxes, to "manage" the economy. President Obama used almost $800 Billion in spending to try

What is discounting in project evaluation : What is discounting in project evaluation? Explain the importance of discounting

Members of the house of representatives : Most of the Federal elected politicians, members of the House of Representatives, are up for reelection every two years.

Propose strategy to achieve the goal of the objective : Choose one (1) objective listed in Exhibit 7-1 in the textbook, and propose one (1) strategy to achieve the goal of the objective.

Calculate the implied forward rates in economy : Calculate the no-arbitrage price of the coupon bond today. Calculate the implied forward rates in this economy.

Domestic shortage or surplus : Suppose for the soybean oil market in costa rica the demand equation is P=20-0.4QD and the supply demand is P=8=0.6QS the price for the oil is $13

What is the monopolist prot : At this output, the average total cost is $15. What is the monopolist's prot?

Expected monetary value as your decision making technique : Propose a business decision in which you intend to use Expected Monetary Value (EMV) as your decision making technique.

Former senator ron paul being the most vocal : Some economists and political leaders (Former Senator Ron Paul being the most vocal) argue that the Federal Reserve has too much control

User Account

All Pages