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1. Suppose there are two discount bonds, A and B. Both have face values of $1000. Bond A has a time to maturity of 1
1. Suppose there are two discount bonds, A and B. Both have face values of $1000. Bond A has a time to maturity of 1 year, and Bond B has a time to maturity of 5 years. The yield to maturity on both bonds is initially 5%. Calculate the prices of both bonds.
2. Suppose that the expected one-year interest rates for the next five years are 3 percent, 5 percent, 6 percent, 5 percent, and 5 percent. According to the expectations hypothesis, what should the current yield to maturity of 5 years' bond?
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