57 The Term Structure of Interest Rates- Spot, Par, and Forward Curves

If the yield curve is downward-sloping, the no-arbitrage value of a bond calculated using spot rates will be:

Given that the two-year spot rate is 5.89% and the one-year forward rate one-year from now is 6.05%, assuming annual compounding what is the one year spot rate?

Using the following spot rates for pricing the bond, what is the present value of a three-year security that pays a fixed annual coupon of 6%?

• Year 1: 5.0%
• Year 2: 5.5%
• Year 3: 6.0%

A spot rate curve is most accurately described as yields to maturity for:

The following spot and forward rates currently exist in the market:

• The 1-year spot rate is 3.75%.
• The 1-year forward rate one year from today is 9.50%.
• The 1-year forward rate two years from today is 15.80%.

Given these rates and based on annual compounding, how much should an investor be willing to pay for each $100 in par value for a three-year, zero-coupon bond?

An investor gathers the following information about a 2-year, annual-pay bond:

• Par value of $1,000
• Coupon of 4%
• 1-year spot interest rate is 2%
• 2-year spot interest rate is 5%

Using the above spot rates, the current price of the bond is closest to:

Using the following spot rates, what is the price of a three-year bond with annual coupon payments of 5%?

• One-year rate: 4.78%
• Two-year rate: 5.56%
• Three-year rate: 5.98%

The one-year spot rate is 6% and the one-year forward rates starting in one, two and three years respectively are 6.5%, 6.8%, and 7%. What is the four-year spot rate?

The six-year spot rate is 7% and the five-year spot rate is 6%. The implied one-year forward rate five years from now is closest to:

A 2-year option-free bond (par value of $10,000) has an annual coupon of 15%. An investor determines that the spot rate of year 1 is 16% and the year 2 spot rate is 17%. The bond price is closest to:

Suppose the 3-year spot rate is 12.1% and the 2-year spot rate is 11.3%. Which of the following statements concerning forward and spot rates is most accurate? The 1-year:

Given the one-year spot rate $S_{1} = 0.06$ and the implied 1-year forward rates one, two, and three years from now of: $1y1y = 0.062$; $2y1y = 0.063$; $3y1y = 0.065$, what is the theoretical 4-year spot rate?

The term structure of yield volatility illustrates the relationship between yield volatility and:

An investor who is calculating the arbitrage-free value of a government security should discount each cash flow using the:

The one-year spot rate is 5% and the two-year spot rate is 6.5%. What is the one-year forward rate starting one year from now?

An analyst collects the following information regarding spot rates:

• 1-year rate = 4%.
• 2-year rate = 5%.
• 3-year rate = 6%.
• 4-year rate = 7%.

The 2-year forward rate two years from today is closest to:

The current 4-year spot rate is 4% and the current 5-year spot rate is 5.5%. What is the 1-year forward rate in four years?

Assume that a callable bond's call period starts two years from now with a call price of $102.50. Also assume that the bond pays an annual coupon of 6% and the term structure is flat at 5.5%. Which of the following is the price of the bond assuming that it is called on the first call date?

The six-month spot rate is 4.0% and the 1 year spot rate is 4.5%, both stated on a semiannual bond basis. The implied six-month rate six months from now, stated on a semiannual bond basis, is closest to:

A 3-year option-free bond (par value of $1,000) has an annual coupon of 9%. An investor determines that the spot rate of year 1 is 6%, the year 2 spot rate is 12%, and the year 3 spot rate is 13%. Using the arbitrage-free valuation approach, the bond price is closest to:

The arbitrage-free bond valuation approach can best be described as the:

Current spot rates are as follows: 1-Year: 6.5% 2-Year: 7.0% 3-Year: 9.2%

Which of the following statements is most accurate?

A three-year annual coupon bond has a par value of $1,000 and a coupon rate of 5.5%. The spot rate for year 1 is 5.2%, the spot rate for year two is 5.5%, and the spot rate for year three is 5.7%. The value of the coupon bond is closest to:

The 3-year annual spot rate is 7%, the 4-year annual spot rate is 7.5%, and the 5-year annual spot rate is 8%. The 1-year forward rate four years from now is closest to:

Given that the one-year spot rate is 6.05% and the two-year spot rate is 7.32%, assuming annual compounding what is the one-year forward rate starting one year from now?

A yield curve for coupon bonds is composed of yields on bonds with similar:

An investor wants to take advantage of the 5-year spot rate, currently at a level of 4.0%. Unfortunately, the investor just invested all of his funds in a 2-year bond with a yield of 3.2%. The investor contacts his broker, who tells him that in two years he can purchase a 3-year bond and end up with the same return currently offered on the 5-year bond. What 3-year forward rate beginning two years from now will allow the investor to earn a return equivalent to the 5-year spot rate?

If the current two-year spot rate is 6% while the one-year forward rate for one year is 5%, what is the current spot rate for one year?

A 2-year option-free bond (par value of $1,000) has an annual coupon of 6%. An investor determines that the spot rate for year 1 is 5% and the year 2 spot rate is 8%. The bond price is closest to:

The 3-year spot rate is 10%, and the 4-year spot rate is 10.5%. What is the 1-year forward rate 3 years from now?

The Treasury spot rate yield curve is closest to which of the following curves?

Assume the following government spot yield curve. One-year rate: 5% Two-year rate: 6% Three-year rate: 7%

If a 3-year annual-pay government bond has a coupon of 6%, its yield to maturity is closest to:

A 10-year spot rate is least likely the:

The one-year spot rate is 7.00%. One-year forward rates are 8.15% one year from today, 10.30% two years from today, and 12.00% three years from today. The value today of a 4-year, $1,000 par value, zero-coupon bond is closest to:

Given that the 2-year spot rate is 5.76% and the 3-year spot rate is 6.11%, what is the 1-year forward rate starting two years from now?

A 4 percent Treasury bond has 2.5 years to maturity. Spot rates are as follows:

The note is currently selling for $976. Determine the arbitrage profit, if any, that is possible.

Which of the following statements regarding zero-coupon bonds and spot interest rates is CORRECT?