Question

a. Assuming that the expectations hypothesis is valid, compute the price of the four-year bond shown below at the end of (i) the first year; (ii) the second year; (iii) the third year; (iv) the fourth year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Beginning of Year	Price of Bond	Expected Price
1	$948.40
2	$921.47
3	$832.62
4	$781.99

b. What is the rate of return of the bond in years 1, 2, 3, and 4? Conclude that the expected return equals the forward rate for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Beginning of Year	Expected Rate of Return
1		%
2		%
3		%
4		%

Answer 1

Complete solution is guven in the excel snippet attached. If you need any other help please let me know in the comments section