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The yields of four zero-coupon bonds of varying maturities are as follows: Maturity YTM 1 6.1%...

The yields of four zero-coupon bonds of varying maturities are as follows:

Maturity YTM
1 6.1%
2 6.2%
3 6.3%
4 6.4%

If you expect the implied term structure to be the same next year as it is this year, what is the expected return on the 1-year zero-coupon bond over the coming year? Please express your answer in percent, rounded to the nearest basis point.

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Answer #1

Yield on Zero Coupon rates represent spot interest rates for the corresponding terms.

Expected return on 1-year zero coupon bond over the coming year is the forward rate for 1 year, after one year from now, ascertained at 6.30% as follows:

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