The (zero coupon) U.S. Treasury strip maturing in two years is selling at an annualized yield to maturity of 3.60%, which is equivalent to a price of 93.272 % of par (face) value. The (zero coupon) U.S. Treasury strip maturing in three years is priced at 88.389 % of par value, with an annualized yield to maturity of 4.2 %. The interest payments for coupon-paying bonds occur annually (once per year) at the end of each year and bond yields are quoted as annualized interest rates (i.e., don’t worry about semiannual compounding). Assuming that the forward interest rate for a one-year period that begins in one year is 4.92 %,a. determine the yield to maturity for a risk-free zero coupon bond having a par value of $1000 that matures in one yearb. determine the yield to maturity for a risk free US Government bond having 3 years to maturity, a par value of $1000 and a coupon rate of 12.5%c. assuming that investors determine the prices of risky bonds by discounting their expected payoffs using the discount rate for risk-free U.S. Treasury Strips having the same time to maturity, and that the probability that there is 15% probabililty that Tesla Motors will default on its outstanding issue of zero coupon bonds having a par value of $1000 and one year to maturity, determine the promised yield for Tesla’s one year zero coupon bonds.
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