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Let M be the month of your birthday. Define D = M if M > 5 ; and D = M + 5 if M
Let M be the month of your birthday. Define D M if M ; and D M if M Assume the yield curve for defaultfree zero coupon bonds is currently as follows: Maturity Years YTM D D D A What are the implied oneyear forward rates? B Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will the pure yield curve that is the yields to maturity on one and two year zero coupon bonds be next year? C If you purchase a two year zero coupon bond now, what is the expected total rate of return over the next year? What if you purchase a threeyear zero coupon bond? Ignore taxes.
Let M be the month of your birthday.
Define D M if M ; and D M if M
Assume the yield curve for defaultfree zero coupon bonds is currently as follows:
Maturity Years YTM
D
D
D
A What are the implied oneyear forward rates?
B Assume that the pure expectations hypothesis of the term structure is correct. If
market expectations are accurate, what will the pure yield curve that is the yields
to maturity on one and two year zero coupon bonds be next year?
C If you purchase a two year zero coupon bond now, what is the expected total rate
of return over the next year? What if you purchase a threeyear zero coupon
bond? Ignore taxes.
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