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Prices of zero-coupon bonds reveal the following pattern of forward rates: Year Forward Rate 1 6 % 2 8 3 9 In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $50 with par value $1,000. a. What is the price of the coupon bond?

Respuesta :

jepessoa

Answer:

$900.83

Explanation:

the price of the zero coupon bonds are:

maturity              price

1                          $943.40

2                         $857.34

3                         $772.18

the price of the coupon bond:

(coupon x price of 1 year bond) + (coupon x price of 2 year bond) + [(maturity value + coupon) x price of 3 year bond] = ($50 x 0.9434) + ($50 x 0.85734) + ($1,050 x 0.77218) = $900.83

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