Forward Interest Rates
Forward Interest Rates
Complete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis.
DQ2 – Bond Prices versus Yields
Complete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and its YTM? (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount. What do you know about the relationship between the coupon rate and the YTM for premium bonds? What about discount bonds? For bonds selling at par value? (c) What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value? Remember to complete all parts of the questions, and report the results of your analysis.
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