Question

Assume the pure expectations hypothesis (PEH) holds, and estimate the term structure for the next three...

Assume the pure expectations hypothesis (PEH) holds, and estimate the term structure for the next three years (i.e. calculate the spot rate for the first year, and the forward rates for the second, and third years).

Bond

Coupon Rate

Maturity

Market Price

A

3% paid annually

1 year

$998.06

B

4% paid annually

2 years

$1011.49

C

7% paid annually

3 years

$1094.68
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