$\begin{array}{cc} \text { Year } & \text { 1-Year Forward Rate } \\ 1 & 4.6\% \\ 2 &4.9\% \\ 3 & 5.2\% \\ 4 & 5.5\% \\ 5 &6.8\% \end{array}$ What should the purchase price of a 1-year zero-coupon bond be if it is purchased today and has face value of $1,000?

A) $966.37 B) $912.87 C) $950.21 D) $956.02 E) $945.51 A) $966.37 B) $912.87 C) $950.21 D) $956.02 E) $945.51 D

$\begin{array}{cc} \text { Year } & \text { 1-Year Forward Rate } \\ 1 & 4.6\% \\ 2 &4.9\% \\ 3 & 5.2\% \\ 4 & 5.5\% \\ 5 &6.8\% \end{array}$ What is the yield to maturity of a 5-year bond?

A) 4.6% B) 4.9% C) 5.2% D) 5.5% E) 5.8% A) 4.6% B) 4.9% C) 5.2% D) 5.5% E) 5.8%

Suppose that all investors expect that interest rates for the 4 years will be as follows: $\begin{array}{ll} \text { Year } &\text { Forward Interest Rate }\\ 0 & 4\% \text { (today) } \\ 1 & 5\% \\ 2 & 6\%\\ 3&7\% \end{array}$ What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

A) $1,092 B) $1,054 C) $986 D) $1,103 E) None of the options are correct. A) $1,092 B) $1,054 C) $986 D) $1,103 E) None of the options are correct.

$\begin{array}{cc} \text { Year } & \text { 1-Year Forward Rate } \\ 1 & 4.6\% \\ 2 &4.9\% \\ 3 & 5.2\% \\ 4 & 5.5\% \\ 5 &6.8\% \end{array}$ What should the purchase price of a 5-year zero-coupon bond be if it is purchased today and has face value of $1,000?

A) $776.14 B) $721.15 C) $779.54 D) $756.02 E) $766.32 A) $776.14 B) $721.15 C) $779.54 D) $756.02 E) $766.32

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. \[\begin{array} { c c } \text { Maturity } & \text { Price } \\ \text { (Years) } & \\ 1 & \$ 943.40 \\ 2 & 881.68 \\ 3 & 808.88 \\ 4 & 742.05 \end{array}\] What is the price of a 4-year maturity bond with a 12% coupon rate paid annually? (Par value = $1,000.)

A) $742.09 B) $1,222.09 C) $1,000.00 D) $1,141.84 E) None of the options are correct. A) $742.09 B) $1,222.09 C) $1,000.00 D) $1,141.84 E) None of the options are correct.

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. \[\begin{array} { c c } \text { Maturity } & \text { Price } \\ \text { (Years) } & \\ 1 & \$ 943.40 \\ 2 & 881.68 \\ 3 & 808.88 \\ 4 & 742.05 \end{array}\] What is the yield to maturity on a 3-year zero-coupon bond?

A) 6.37% B) 9.00% C) 7.33% D) 10.00% E) None of the options are correct. A) 6.37% B) 9.00% C) 7.33% D) 10.00% E) None of the options are correct.

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. $\begin{array}{cc} \text { Maturity } & \text { Price } \\ \text { (Years) } & \\ 1 & \$ 925.15 \\ 2 & 862.57 \\ 3 & 788.66 \\ 4 & 711.00 \end{array}$ You have purchased a 4-year maturity bond with a 9% coupon rate paid annually. The bond has a par value of $1,000. What would the price of the bond be one year from now if the implied forward rates stay the same?

A) $995.63 B) $1,108.88 C) $1,000.00 D) $1,042.78 A) $995.63 B) $1,108.88 C) $1,000.00 D) $1,042.78

$\begin{array}{ll} \text { Par value } &\$1,000\\ \text { Time to Maturity } &20 \text { Years } \\ \text { Coupon} &10 \% \text { (paid annually)}\\ \text { Current price } &\$850\\ \text {Yield to Maturity } &12\%\\ \end{array}$ Given the bond described above, if interest were paid semi-annually (rather than annually), and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be

A) less than 12%. B) more than 12%. C) 12%. D) Cannot be determined. E) None of the options are correct. A) less than 12%. B) more than 12%. C) 12%. D) Cannot be determined. E) None of the options are correct.

Exam 15: The Term Structure of Interest Rates

Year 1-Year Forward Rate 1 5\% 2 5.5\% 3 6.0\% 4 6.5\% 5 7.0\% What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

D

If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows), you could

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

A

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 6.8\% What should the purchase price of a 1-year zero-coupon bond be if it is purchased today and has face value of $1,000?

Free

(Multiple Choice)

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Question 3

Correct Answer:

Verified

D

The most recently issued Treasury securities are called

(Multiple Choice)

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Question 4

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 6.8\% What is the yield to maturity of a 5-year bond?

(Multiple Choice)

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Question 5

The value of a Treasury bond should

(Multiple Choice)

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Question 6

Given the yield on a 3-year zero-coupon bond is 7% and forward rates of 6% in year 1 and 6.5% in year 2, what must be the forward rate in year 3?

(Multiple Choice)

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Question 7

When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the

(Multiple Choice)

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Question 8

Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 4\% (today) 1 5\% 2 6\% 3 7\% What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

(Multiple Choice)

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Question 9

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 6.8\% What should the purchase price of a 5-year zero-coupon bond be if it is purchased today and has face value of $1,000?

(Multiple Choice)

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Question 10

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. Maturity Price (Years) 1 \ 943.40 2 881.68 3 808.88 4 742.05 What is the price of a 4-year maturity bond with a 12% coupon rate paid annually? (Par value = $1,000.)

(Multiple Choice)

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Question 11

The pure yield curve can be estimated

(Multiple Choice)

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Question 12

Forward rates future short rates because .

(Multiple Choice)

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Question 13

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows), you could

(Multiple Choice)

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Question 14

The expectations theory of the term structure of interest rates states that

(Multiple Choice)

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Question 15

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. Maturity Price (Years) 1 \ 943.40 2 881.68 3 808.88 4 742.05 What is the yield to maturity on a 3-year zero-coupon bond?

(Multiple Choice)

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Question 16

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. Maturity Price (Years) 1 \ 925.15 2 862.57 3 788.66 4 711.00 You have purchased a 4-year maturity bond with a 9% coupon rate paid annually. The bond has a par value of $1,000. What would the price of the bond be one year from now if the implied forward rates stay the same?

(Multiple Choice)

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Question 17

Year 1 Year Forward Rate 1 4.5\% 2 5.2\% 3 5.9\% 4 6.3\% 5 6.8\% 6 7.0\% What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

(Multiple Choice)

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Question 18

_____________________ are created from coupon paying treasuries, where the coupon and principal are separated.

(Multiple Choice)

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Question 19

Par value \1 ,000 Time to Maturity 20 Years Coupon 10\% (paid annually) Current price \8 50 Yield to Maturity 12\% Given the bond described above, if interest were paid semi-annually (rather than annually), and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be

(Multiple Choice)

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Question 20

Exam 15: The Term Structure of Interest Rates

Year 1-Year Forward Rate 1 5\% 2 5.5\% 3 6.0\% 4 6.5\% 5 7.0\% What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows), you could

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 6.8\% What should the purchase price of a 1-year zero-coupon bond be if it is purchased today and has face value of $1,000?

The most recently issued Treasury securities are called

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 6.8\% What is the yield to maturity of a 5-year bond?

The value of a Treasury bond should

Given the yield on a 3-year zero-coupon bond is 7% and forward rates of 6% in year 1 and 6.5% in year 2, what must be the forward rate in year 3?

When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the

Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 4\% (today) 1 5\% 2 6\% 3 7\% What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

Year 1-Year Forward Rate 1 4.6\% 2 4.9\% 3 5.2\% 4 5.5\% 5 6.8\% What should the purchase price of a 5-year zero-coupon bond be if it is purchased today and has face value of $1,000?

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. Maturity Price (Years) 1 \ 943.40 2 881.68 3 808.88 4 742.05 What is the price of a 4-year maturity bond with a 12% coupon rate paid annually? (Par value = $1,000.)

The pure yield curve can be estimated

Forward rates ____________ future short rates because ____________.

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows), you could

The expectations theory of the term structure of interest rates states that

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. Maturity Price (Years) 1 \ 943.40 2 881.68 3 808.88 4 742.05 What is the yield to maturity on a 3-year zero-coupon bond?

Year 1 Year Forward Rate 1 4.5\% 2 5.2\% 3 5.9\% 4 6.3\% 5 6.8\% 6 7.0\% What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

_____________________ are created from coupon paying treasuries, where the coupon and principal are separated.

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Risk, Return, and the Historical Record

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Forward rates future short rates because .