Evaluate what is the net return

Reference no: EM132028108

Question: A par $1,000 zero-coupon bond that matures in 5years sells for $828. Assume that there is a constant continuously compounded forward rate r.

(a) What is r?

(b) Suppose that 1 year later the forward rate r is still constant but has changed to be 0.042. Now what is the price of the bond?

(c) If you bought the bond for the original price of $828 and sold it 1 year later for the price computed in part (b), then what is the net return?

Reference no: EM132028108

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