help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Consider the following $1,000 par value zero-coupon bonds: Bond Maturity (years) Yield to Maturity A 1 5% B 2 6% C 3 6

Consider the following $1,000 par value zero-coupon bonds: Bond Maturity (years) Yield to Maturity A 1 5% B 2 6% C 3 6

Finance

Consider the following $1,000 par value zero-coupon bonds:

Bond Maturity (years) Yield to Maturity

A 1 5%

B 2 6%

C 3 6.5%

D 4 7%

According to the expectations hypothesis, what is the expected 1-year interest rate 3 years from now? 

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Computation of the expected 1-year interest rate 3 years from now:-

Forward rate = (1+4 years interest rate)^n/(1+3 years interest rate)^n-1

= (1+7%)^4/(1+6.5%)^3-1

= (1.3108 / 1.2079) -1

= 1.0851 - 1

= 8.51%

 

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)