1.

Price of a zero coupon bond = Face value of bond/(1+r) n, where r is the YTM and
n is the life of bond

a.

Semi-annual YTM = 6%/2 = 3% = 0.03

Life of bond in semi-annual periods = 15 years*2 = 30

Price of bond = $1,000/1.0330 = $411.99

b.

Semi-annual YTM = 8%/2 = 4% = 0.04

Price of bond = $1,000/1.0430 = $308.32

c.

Semi-annual YTM = 10%/2 = 5% = 0.05

Price of bond = $1,000/1.0530 = $231.38

2.

Price of bond = Present value of remaining coupon payments + Present value of

face value of bond

Semi-annual coupon amount = $5,000*3.7%*1/2 = $92.50

Number of semi-annual coupon payments = n = 16 years *2 = 32

Semi-annual YTM = 3.9%/2 = 1.95% = 0.0195

Present value of ordinary annuity = Annuity amount*{1-(1+r) -n}/r

Present value of coupon payments = $92.50*(1-1.0195 -32)/0.0195 = $2,186.68

Present value of face value of bond = $5,000/1.0195 32 = $2,695.12

Price of bond = $2,186.68+$2,695.12 = $4,881.80

3.

Nominal return = 13%

Real return = 8%

(1+Nominal return) = (1+real return)*(1+Inflation rate)

1.13 = 1.08*(1+Inflation rate)

1+Inflation rate = 1.13/1.08 = 1.04630

Inflation rate = 1.04630 1 = 0.04630

Hence, Inflation rate will be 4.63%