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3. (20 points) Tirion sells a zero-coupon bond that matures in 3 years for 5,000, which he immediately uses to buy a zero-coupon bond that
3. (20 points) Tirion sells a zero-coupon bond that matures in 3 years for 5,000, which he immediately uses to buy a zero-coupon bond that matures in 4 years. Find the annual effective yield of his investment given the following yield curve: Term to maturity t 1 2 3 4 5 6 7 Spot rate st 2% 3% 4% 5% 6% 7% 8% 3. (20 points) Tirion sells a zero-coupon bond that matures in 3 years for 5,000, which he immediately uses to buy a zero-coupon bond that matures in 4 years. Find the annual effective yield of his investment given the following yield curve: Term to maturity t 1 2 3 4 5 6 7 Spot rate st 2% 3% 4% 5% 6% 7% 8%
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