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Given the following information, answer the question step by step. A zero-coupon bond is a debt security that does not pay interest but instead trades
Given the following information, answer the question step by step.
A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount.
zero-coupon bonds are popular investment assets.
Prices of zero-coupon bonds have the following pattern of interest rates:
Years from now | 1-year interest rate |
0 | 5.2% |
1 | 7.3% |
2 | 8.6% |
Find i) 3-year interest rate on today. ii) 1-year forward rate 3 years from now if 4-year interest rate on today is 7.8%.
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