Below is a list of prices for zero coupon bonds of various maturities.
|
Maturity (Years) |
Price of $1,000 Par Bond (Zero Coupon) |
|
1 |
943.40 |
|
2 |
873.52 |
|
3 |
816.37 |
a. An 8.5% coupon $1,000 par bond pays an annual coupon and will mature in 3 years. What should the yield to maturity on the bond be?
b. If at the end of the first year the yield curve flattens out at 8%, what will be the 1 year holding period return on the coupon bond?