a. Assuming that the expectations hypothesis is valid, compute the expected price of the 4-year bond in Problem 7 at the end of (i) the first year; (ii) the second year; (iii) the third year; P-639

(iv) the fourth year.

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. P-639