The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000. $$\begin{array} { c c }
\text { Maturity (Years) } & \text { Price } \
\hline 1 & \$ 943.40 \
2 & \$ 881.68 \
3 & \$ 808.88 \
4 & \$ 742.09
\end{array}$$
You have purchased a 4-year maturity bond with a 10% coupon rate paid annually.The bond has a par value of $1,000.What would the price of the bond be one year from now if the implied forward rates stay the same?

Question

The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000. $$\begin{array} { c c } 
\text { Maturity (Years) } & \text { Price } \
\hline 1 & \$ 943.40 \
2 & \$ 881.68 \
3 & \$ 808.88 \
4 & \$ 742.09
\end{array}$$
You have purchased a 4-year maturity bond with a 10% coupon rate paid annually.The bond has a par value of $1,000.What would the price of the bond be one year from now if the implied forward rates stay the same?

Quizplus · Accepted Answer

The price of the bond one year from now can be calculated using the forward rate for the remaining 3 years. The forward rate can be derived from the zero coupon bond prices. The bond will have 3 years remaining, and the price will be the present value of the remaining cash flows (3 coupon payments of $100 and the $1,000 par value) discounted at the implied forward rate.

The Following Is a List of Prices for Zero Coupon