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Assume that the liquidity preference hypothesis holds and use the following table to answer next 3 questions Year 1-Year Forward Rate 1-year liquidity premium from
Assume that the liquidity preference hypothesis holds and use the following table to answer next 3 questions Year 1-Year Forward Rate 1-year liquidity premium from today. 1 2.8% 0 2 3.1% 0.5% 3 3.2% 0.6% (3 MARKS) What would the yield to maturity be on a two-year zero-coupon bond purchased today? a. 3.2% b. 3.6% c. 3.1% d. 2.95% e. None of the above (5 MARKS) What is the price at the beginning of year 1 (today) of a 5% annual coupon bond with face value $1,000 and 3 years to maturity? a. 1055.60 b. 1045.40 c. 1066.33 d. 1055.78 e. None of the above
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