The prices of a number of $1,000 (face value)zero-coupon bonds are provided in the Table, below. Compute the yields on the zero coupon bonds. Plot the yield curve. What is the shape of the yield curve? $\begin{array}{|l|l|cc|}
\hline \text { Maturity } & \text {Price } & \text { Yield}\
\hline \text { 1 Year } & \$965.35 & \text {k}_1\
\hline \text {2 Year } & \$923.24& \text { k}_2\
\hline\text {3 Year } & \$885.25& \text {k}_3\
\hline
\end{array}$

Question

The prices of a number of $1,000 (face value)zero-coupon bonds are provided in the Table, below. Compute the yields on the zero coupon bonds. Plot the yield curve. What is the shape of the yield curve? $\begin{array}{|l|l|cc|}
 \hline \text { Maturity } & \text {Price  }  & \text {  Yield}\
\hline \text { 1 Year } & \$965.35 & \text {k}_1\
\hline \text {2 Year  } & \$923.24& \text { k}_2\
 \hline\text {3 Year } & \$885.25& \text {k}_3\
\hline 
\end{array}$

Quizplus · Accepted Answer

The yields can be calculated using the formula: Yield = [(Face Value / Price)^(1/Maturity)] - 1. Calculating for each bond, we find that the yields increase with maturity, indicating an upward sloping yield curve.

The Prices of a Number of $1,000 (Face Value)zero-Coupon Bonds