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Problem 1 (25 points) Suppose that the prices of zero-coupon bonds with various maturities are given in the fol- lowing table. The face value of
Problem 1 (25 points) Suppose that the prices of zero-coupon bonds with various maturities are given in the fol- lowing table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 Price $940 $860 $780 $710 (a) Compute the yield-to-maturity for each zero coupon bond. (b) Compute the forward rate for each year. (c) How to construct a 1-year forward loan beginning in the third year to effectively borrow $1000? The rate on that loan equals the forward rate of year 3
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