Question
The term structure for zero-coupon bonds is currently: Maturity (Years) YTM(%) 1 5.0 % 2 6.0...
The term structure for zero-coupon bonds is currently:
| Maturity (Years) | YTM(%) | |
| 1 | 5.0 | % |
| 2 | 6.0 | |
| 3 | 7.0 | |
Next year at this time, you expect it to be:
| Maturity (Years) | YTM(%) | |
| 1 | 6.0 | % |
| 2 | 7.0 | |
| 3 | 8.0 | |
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.)
b-2. Is the market's expectation of the return on
the 3-year bond greater or less than yours?
-
Greater
-
Less
Homework Answers
Answer #1
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