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(a) (5 points) Suppose that the current bond market provides investors with a risk- free, two-year zero-bond paying an interest rate of 20%. There is

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(a) (5 points) Suppose that the current bond market provides investors with a risk- free, two-year zero-bond paying an interest rate of 20%. There is also a one-year zero-bond paying an interest rate of 18%. Based on the Unbiased Expectations Theory of interest rates, what is the forecasted interest rate of a future (i.e., next year's) one-year bond? (6 points) Below are yields on AAA-rated, zero-coupon bonds. Assume that there are no liquidity premiums. Suppose that you just bought a 15-year maturity Vandelay Industries corporate bond that is rated AAA and it is a zero-coupon bond. You expect to sell the bond in eight years. What is the expected interest rate at the time of sale? 1-year: 8.00% 7-year: 9.15% 13-year: 10.45% 2-year: 8.11% 8-year: 9.25% 14-year: 10.65% 3-year: 8.20% . 9-year: 9.35% 15-year: 10.75% 4-year: 8.50% 10-year: 9.47% 16-year: 10.95% 5-year: 8.75% 11-year: 9.52% 17-year: 11.00% 6-year: 8.85% 12-year: 9.77% 18-year: 11.25%

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