In a particular market where spot rates are applicable, the price at issuance of a 3-year fixed interest bond with 6.6% annual interest and redeemable at 103% is £115 for every nominal £100.In addition, the 3-year spot rate is 7.9% pa, and the 1-year forward rate is 6.3% pa at time t=3. Thus, using only formulas and no charts, calculate the 4-year par yield in this market at time t=0. The right answer is 4.36757

In a particular market where spot rates are applicable, the price at issuance of a 3-year fixed interest bond with 6.6% annual interest and redeemable at 103% is £115 for every nominal £100.In addition, the 3-year spot rate is 7.9% pa, and the 1-year forward rate is 6.3% pa at time t=3. Thus, using only formulas and no charts, calculate the 4-year par yield in this market at time t=0. The right answer is 4.36757

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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The price at issue of a 3-year fixed interest bond with 6.6% annual interest and redeemable at 103% in a specific market where spot rates are in effect is £115 for every nominal £100.Furthermore, the 1-year forward rate at time t=3 is 6.3% pa, and the 3-year spot rate is 7.9% pa. Therefore, compute the 4-year par yield in this market at time t=0, no tables, only formulas, correct answer=4.36757
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