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Question #1 (7/10 points)
The yield curve below is based off of yields from risk-free government securities.
A. (2 marks) Using the yield curve in the graph, determine the price of a 3-year government bond
with a face value of $1,000 and semi-annual coupons at a rate of 5% per annum. Show your work
for partial credit.
B.
(3 marks) You see a 4-year government bond with the same face value and coupon rate. This
bond is trading at a price of $837.09. What is the 4-year yield? No guessing! Show work or
receive no credit.

C.
(2 marks) Assume you want to price the 4-year bond using the PVAF. How inaccurate would
your price be using the PVAF? Use both 1) the mean and 2) the median of the eight yields in the
PVAF.

Yield Curve

Yield Curve

Yield %
per annum

0.5

1

1.5

2

2.5

3

3.5

4

Maturity (years)


Question #1 (7/10 points)

 

The yield curve below is based off of yields from risk-free government securities.

 

A. (2 marks) Using the yield curve in the graph, determine the price of a 3-year government bond

 

with a face value of $1,000 and semi-annual coupons at a rate of 5% per annum. Show your work

 

for partial credit.

 

B. (3 marks) You see a 4-year government bond with the same face value and coupon rate. This

 

bond is trading at a price of $837.09. What is the 4-year yield? No guessing! Show work or

 

receive no credit. C. (2 marks) Assume you want to price the 4-year bond using the PVAF. How inaccurate would

 

your price be using the PVAF? Use both 1) the mean and 2) the median of the eight yields in the

 

PVAF. Yield Curve Yield Curve Yield %

 

per annum 0.5 1.0 1.5 2.0 2.5 Maturity (years) 3.0 3.5 4.0

 







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