Question 1: Here is the list of government zero-coupon bond (invoice) prices with different maturities: Maturity One yea

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Question 1 Here Is The List Of Government Zero Coupon Bond Invoice Prices With Different Maturities Maturity One Yea 1 (165.17 KiB) Viewed 86 times

Question 1: Here is the list of government zero-coupon bond (invoice) prices with different maturities: Maturity One year Two years Three years Four years Five years Six years Seven years (Invoice) Price $993.0217 $978.8188 $967.0194 $948.7170 $931.1732 $911.2364 $901.0145 a) (7 marks) Calculate the current price of a government bond with a face value of $1000 and a coupon rate of 7%. It is an annual coupon bond that matures in 5 years. b) (13 marks) Calculate the current bond price issued by Suncor Energy if it has a face value of $1000 and a coupon rate of 7%. It matures in 5 years. Use the following table to find the default risk premium. (Assume the default risk is not a function of maturity) Hint: A common practice to find a corporate bond price is to use bond ratings issued by rating agencies. 1. Use the average default risk premium of bonds with a similar rating as a benchmark for the default risk premium of the corporate bond of your interest. 2. Add the benchmark risk premium to the risk-free rate and use it as the yield to maturity of the corporate bond. **Please note that the risk-free rate depends on the payment structure of the corporate bond. Bond Rating The required rate of interest BBB+ ? AA- 1.93% AAA 1.90% Suncor Energy 7% 5 years from now Imperial Oil 8% 3 years from now Woodbridge 10% 5 years from now Potash Corp 3% 5 years from now Husky Energy 10% 3 years from now BBB+ 3.20% BBB+ 2.85%