Calculate the present value of a $1,000 zero-coupon bond with 5 years to maturity if the required annual interest

Calculate the present value of a $1,000 zero-coupon bond with 5 years to maturity if the required annual interest

 

 

answer:

1) The PV = 1000/1.06^5 = $747.26
2)
Yield Probability Price of bond next year beginning Price * Probability d =                Price – E(P) d^2 p*D^2
6.60 0.1 1000/1.066^4 = 774.41 77.44 11.33 128.38 12.84
6.75 0.2 1000/1.0675^4 = 770.07 154.01 6.99 48.82 9.76
7.00 0.4 1000/1.07^4 = 762.90 305.16 -0.18 0.03 0.01
7.20 0.2 1000/1.072^4 = 757.22 151.44 -5.86 34.36 6.87
7.45 0.1 1000/1.0745^4 = 750.20 75.02 -12.88 166.02 16.60
763.08 46.09
a) Expected price of the bond 1 year from now = $763.08
b) Standard deviation = (46.09)^(1/2) = 6.79%

 

Add Comment
0 Answer(s)
  • Votes
  • Oldest

Your Answer

By posting your answer, you agree to the privacy policy and terms of service.