What is the price of the coupon bond

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Reference no: EM133008564

Problem - Price of zero-coupon bonds reveal the following pattern of forward rates:

Year

Forward Rate

1

6%

2

8%

3

10%

4

13%

In addition to the zero-coupon bond, investors also may purchase a 4-year bond making annual payments of $80 with par value of $1,000.

Required -

(a) What is the price of the coupon bond?

(b) What is the yield to maturity of the coupon bond?

(c) Under the expectation hypothesis, what is the expected realized compound yield of the coupon bond?

(d) If you forecast that the yield curve in one year will be flat at 8%, what is your forecast for the expected rate of return on the coupon bond for the one-year holding period?

Reference no: EM133008564

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