CAS Exam 9 Spring 2019, Question 6
Study guide: Exam 9
Given the following $1,000 par value zero-coupon bonds with annual compounding:
| Bond | Years to Maturity | Yield to Maturity | Price of Bond |
|---|---|---|---|
| A | 1 | 5.00% | $952.38 |
| B | 2 | 6.50% | $881.66 |
| C | 3 | y_C |
$810.60 |
| D | 4 | y_D |
$735.03 |
Part a (1 point)
Calculate the price of a $1,000 par value bond with 5% annual coupons maturing in four years.
Part b (0.5 points)
Calculate the expected one-year short rate one year from now. Assume the expectations hypothesis is valid.
Part c (0.25 points)
Calculate the expected one-year short rate one year from now. Assume the liquidity preference theory is valid with a constant liquidity premium of 2%.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution