question archive A 4-year zero coupon bond has a face value of $100 and a price of $85
A 4-year zero coupon bond has a face value of $100 and a price of $85
Subject:FinancePrice: Bought3
A 4-year zero coupon bond has a face value of $100 and a price of
$85.480. The table below contains prices, coupons and time to maturity for 3 annual coupon paying bonds that have a face value of $100.
Time to Maturity (Years) Annual Coupon Price
1 3.0% $99.038
2 8.5% $108.487
3 6.5% $106.937
Please use 3 decimal places in your working.
a) What is the price of a 3-year bond paying annual coupons of 4% and a face value of $100?
b) If you had $1million invested in the 3-year 4% coupon bond, how many of the 4-year zero-coupon bonds would you need to short-sell to hedge your interest rate risk?
