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Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 5 Yield to Maturity 4.70% 5.20% 5.45% 5.65% 5.80% (a) What is the price per $100 face value of a 3-year, zero-coupon risk-free bo

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jepessoa

Answer:

$85.28

Explanation:

Maturity (years)           1             2           3            4            5

Yield to Maturity     4.70%    5.20%    5.45%    5.65%    5.80%

the formula that we can use to calculate the market value of a zero coupon bond is:

market price = maturity value / (1 + yield to maturity)ⁿ

  • maturity value = $100
  • yield to maturity = 5.45%
  • n = 3 years

market price = $100 / (1 + 5.45%)³ = $100 / 1.172573 = $85.28

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