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The term structure for zero-coupon bonds is currently: Maturity (Years) YTM(%) 1 4.3 % 2 5.3...

The term structure for zero-coupon bonds is currently:

Maturity (Years) YTM(%)
1 4.3 %
2 5.3
3 6.3


Next year at this time, you expect it to be:

Maturity (Years) YTM(%)
1 5.3 %
2 6.3
3 7.3


a. What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? (Round your answer to 1 decimal place.)




b-1. Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? (Round your answers to 2 decimal places.)

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