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Create a rough sketch and label the spot rates

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Reference no: EM133090409

Question - Assume that within the market, we currently have zero coupon bonds of which are trading:

1 year 0 coupon bond price of $700

2 year 0 coupon bond price of $650

3 year 0 coupon bond price of $612

(Assume face value $1000)

Find the spot rates, based on 0 coupon bonds.

Talk about the yield curve and whether its downwards sloping, upwards? Create a rough sketch and label the spot rates.

Let us say that Spider-Man wanted to buy a 3 yr coupon bond of 6 percent (paid annually) with a face value of $1000. What is the expected price that Spider-Man would pay for this bond? Is the bond premium or discount?

Assume that interests rates are always positive, can a 0-coupon bond trade at premium to face value? Explain a little.

Reference no: EM133090409

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