(1) One, two, and three year maturity, default free, zero coupon bonds have yields to maturity of 7%, 8%, and 9%, respectively. What is the implied 1-year forward rate 1 year from today?

(2) Consider a two-asset portfolio with $10 invested in each asset. The mean returns of the two assets are 10% and 15%. The correlation of returns is 50%. The standard deviation of returns is 20% and 30%, respectively. What is the 99% VaR of this portfolio?

(3) Assuming annual compounding, the prices of a one-year 4% coupon bond and a two year 5% coupon bond are $101 and $99, respectively. The fair price of a two-year 6% coupon bond would be what?

(4) Assuming annual compounding, the prices of a one-year 4% coupon bond and a two-year 5% coupon bond are $101 and $99 respectively. The forward rate between one and two years is what?

(5) You are given two discount bonds of one-year and two-year maturities, with prices of $95 and $90 respectively. A third bond of three-year maturity and an annual coupon of 8% is trading at par. What is the three-year continuously compounded zero-coupon rate?

(6) True or false: If a firm's credit spread increases, the firm's assets have decreased in value and the risk of its assets have increased.

Solution PreviewSolution Preview

This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.

Answer 1:
In this case, we have been given the annual rates.
Given that the yield to maturity of zero coupon bond with 1 year to maturity is 7% and that with 2 years to maturity is 8%.
The implied 1 year forward rate 1 year from today is the rate at which the proceeds from the bond that matures in one year would be invested so that the total annual return for 2 years is 8%. This can be...
$50.00 for this solution

PayPal, G Pay, ApplePay, Amazon Pay, and all major credit cards accepted.

Find A Tutor

View available Finance Tutors

Get College Homework Help.

Are you sure you don't want to upload any files?

Fast tutor response requires as much info as possible.

Upload a file
Continue without uploading

We couldn't find that subject.
Please select the best match from the list below.

We'll send you an email right away. If it's not in your inbox, check your spam folder.

  • 1
  • 2
  • 3
Live Chats