Question 1: Suppose the current zero coupon yield curve for risk free bonds is as follows:
Maturity (years) 1 2 3 4 5
YTM 5.00% 5.50% 5.75% 5.95% 6.05%
a. What is the price per $100 face value of a two year, zero coupon, risk free bond?
b. What is the price per $100 face value of a four year, zero coupon, risk free bond?
c. What is the risk free interest rate for a five year maturity?
Question 2: Suppose a seven year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%
a. Is this bond currently trading at a discount, a par, or at a premium? Explain.
b. If the yield to maturity of the bond rises to 7.00% (APR with semiannual compounding) what price will the bond trade for?