Problem:
Suppose the prices of zero-coupon bonds are as given in the table below, and each bond has a face value of $1,000.
|
Bond
|
Price
|
Maturity (years)
|
|
A
|
$955.94
|
1
|
|
B
|
$870.22
|
2
|
|
C
|
$790.50
|
3
|
|
D
|
$715.28
|
4
|
|
E
|
$644.14
|
5
|
a. Calculate the yields to maturity for the five bonds.
b. Compute the forward rate for each year.
c. How would you construct a one-year forward loan beginning in year 2?