Question

Suppose you are given the following information about four different, default-free bonds, each with a face value of $1,000. The coupon bonds have annual payments. The yield to maturity of bond A with a maturity of 1 year and a coupon rate of 0% is 2%. The yield to maturity of bond B with a maturity of 2 year and a coupon rate of 10% is 3.908%. The yield to maturity of bond C with a maturity of 3 year and a coupon rate of 6% is 5.840%. The yield to maturity of bond D with a maturity of 4 year and a coupon rate of 12% is 5.783%. Given this information, what is the four-year spot rate? Note: Answer in percentages with two decimals and do not use the percentage sign in the answer box. For example, if you find the answer to be 0.1052, submit 10.52 as the answer.

          Suppose you are given the following information about four different, default-free bonds, each with a face value of $1,000. The coupon bonds have annual payments.

The yield to maturity of bond A with a maturity of 1 year and a coupon rate of 0% is 2%.
The yield to maturity of bond B with a maturity of 2 year and a coupon rate of 10% is 3.908%.
The yield to maturity of bond C with a maturity of 3 year and a coupon rate of 6% is 5.840%.
The yield to maturity of bond D with a maturity of 4 year and a coupon rate of 12% is 5.783%.
Given this information, what is the four-year spot rate?

Note: Answer in percentages with two decimals and do not use the percentage sign in the answer box. For example, if you find the answer to be 0.1052, submit 10.52 as the answer.
        
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Finite Mathematics and Calculus with Applications
Finite Mathematics and Calculus with Applications
Margaret L. Lial, Raymond N. Greenwell,… 9th Edition
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Suppose you are given the following information about four different, default-free bonds, each with a face value of $1,000. The coupon bonds have annual payments. The yield to maturity of bond A with a maturity of 1 year and a coupon rate of 0% is 2%. The yield to maturity of bond B with a maturity of 2 year and a coupon rate of 10% is 3.908%. The yield to maturity of bond C with a maturity of 3 year and a coupon rate of 6% is 5.840%. The yield to maturity of bond D with a maturity of 4 year and a coupon rate of 12% is 5.783%. Given this information, what is the four-year spot rate? Note: Answer in percentages with two decimals and do not use the percentage sign in the answer box. For example, if you find the answer to be 0.1052, submit 10.52 as the answer.
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Transcript

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00:01 Hello, so here to determine the four -year spot rate.
00:03 We use the given yield to maturity values and then solve for the spot rate using the zero coupon bond approach.
00:09 So the key formula here for the price of a bond is going to be p is equal to the sum of c over 1 plus s sub t to the t plus f over the quantity 1 plus s sub n to the n.
00:28 So here we have p is the price of the bond, assumed to be $1 ,000 for default free bonds.
00:34 C is the annual coupon payment.
00:36 F is the face value of $1 ,000.
00:38 S sub t is the spot rate for year t, and n would be the bond maturity.
00:43 So from the problem here, bond a, we have a one -year maturity, zero coupon yield of 2 .00%...
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