(Answered) Question 1 - refer to figure 23 and look at the treasury

Accounting

Question 1 - Refer to Figure 2.3 and look at the Treasury bond maturing in May 2042.

a. How much would you have to pay to purchase one of these bonds?

b. What is its coupon rate?

c. What is the yield to maturity of the bond?

Question 2 - Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 3.0% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as follows: (Assume the entire 3.0% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.)

Question 3 - Suppose your expectations regarding the stock price are as follows:

Satiate of the Market	Probability	Ending Price	HPR (including dividends)
Boom	0.30	$140	48.5%
Normal growth	0.23	110	13.5
Recession	0.47	80	-19.5

Use Equations E(r) = ∑_sp(s)r(s), σ2 = ∑_sp(s)r(s) - E(r)² to compute the mean and standard deviation of the HPR on stocks.

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