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
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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?
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