help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / The following yield data relates to a number of high-quality corporate bonds recorded at each of the three points in time:   Yield to Maturity Maturity (years) 5 years ago 2 years ago Today 1 9

The following yield data relates to a number of high-quality corporate bonds recorded at each of the three points in time:   Yield to Maturity Maturity (years) 5 years ago 2 years ago Today 1 9

Finance

The following yield data relates to a number of high-quality corporate bonds recorded at each of the three points in time:

 

Yield to Maturity

Maturity (years)

5 years ago

2 years ago

Today

1

9.10%

14.60%

9.30%

3

9.20%

12.80%

9.80%

5

9.38%

12.20%

10.90%

10

9.6%

10.90%

12.60%

Required: Consider the data from 5 years ago. According to the expectations hypothesis, what approximate return did investors expect a 5-year bond to pay as of today? Hint: think of expectations as a percentage difference in returns between the present and the future.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Consider the data from 5 years ago.

YTM of N1 = 5 years maturity = 9.38% = Y1

YTM of N2 = 10 years maturity = 9.6% = Y2

Hence, approximate return investors expected on a 5-year bond to pay as of today = (Y2 x N2 - Y1 x N1) / (N2 - N1) = (10 x 9.6% - 5 x 9.38%) / (10 - 5) = 9.82%

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)