The following table shows the prices of a sample of Narnian Treasury strips in December 2018. Each strip makes a single payment of $1,000 at maturity. Maturity Price (%) December 2020 90.703 December 2021 85.892 December 2022 81.491 December 2023 77.243 a. Calculate the annually compounded, spot interest rate for each year. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Is the term structure upward- or downward-sloping or flat? multiple choice 1 Downward-sloping Upward-sloping Flat c. Would you expect the yield on a coupon bond maturing in December 2023 to be higher or lower than the yield on the 2020 strip? multiple choice 2 Higher Lower
The following table shows the prices of a sample of Narnian Treasury strips in December 2018. Each strip makes a single payment of $1,000 at maturity. Maturity Price (%) December 2020 90.703 December 2021 85.892 December 2022 81.491 December 2023 77.243 a. Calculate the annually compounded, spot interest rate for each year. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Is the term structure upward- or downward-sloping or flat? multiple choice 1 Downward-sloping Upward-sloping Flat c. Would you expect the yield on a coupon bond maturing in December 2023 to be higher or lower than the yield on the 2020 strip? multiple choice 2 Higher Lower
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money
Section: Chapter Questions
Problem 9.12E
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The following table shows the prices of a sample of Narnian Treasury strips in December 2018. Each strip makes a single payment of $1,000 at maturity.
Maturity | Price (%) |
December 2020 | 90.703 |
December 2021 | 85.892 |
December 2022 | 81.491 |
December 2023 | 77.243 |
a. Calculate the annually
b. Is the term structure upward- or downward-sloping or flat?
multiple choice 1
-
Downward-sloping
-
Upward-sloping
-
Flat
c. Would you expect the yield on a coupon bond maturing in December 2023 to be higher or lower than the yield on the 2020 strip?
multiple choice 2
-
Higher
-
Lower
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