2) Your firm has issued 20-year zero-coupon bonds with a $1,000 fcpouding? for $

Question

2) Your firm has issued 20-year zero-coupon bonds with a $1,000 fcpouding? for $385, what is the annual yield to maturity, assuming sem value. If the bonds are currently D) This question cannot be answered because there is no coupon pay 3) You plan to deposit into your bank account $300 three years fr , $500 four years from now and then to year, how much would you have in withdraw your full balance at the end of year 5. If you can your account by the end of year 5? A) $787.59 D) 5844 48 B) $800.00 C) $694.10 4) If the daily rate is.01%, then the periodic rate weaa be- the APR would be-- and the EAR would be A) .000% .01%; 1.01% C) 1.00%; 3.72%; 3.65% 72%;3.65% D) ,01%; 3.65%; 3.72%

Explanation / Answer

2. Let us assume that the YTM for the zero coupon bond is r% pe annum, then basis the information given to us: 385 * (1+r%/2)40 = 1000 ; we divide r% by 2 and multiply tenure by 2 to adjust for semi annual compounding. Solving for r, we get r = 4.83%

3. $300 will grow from year 3 to 5 at 4%: 300 * (1+4%)2 = 324.48

$ 500 wil grow from year 4 to 5 at 4% : 500 * (1+4%) = 520

Total = 844.48

4. Periodic rate will be daily rate = 0.01%; Annual rate (APR) = 0.01% * 365 = 3.65% and EAR = [1+annual rate/number of compounding periods]number of compounding - 1 = (1+3.65%/365)365 -1 = 3.72%

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