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Problem 4: Term Structure and Expectations Hypothesis (6 points) (a) The following is a list of prices for zero-coupon riskless bonds of various maturities, all
Problem 4: Term Structure and Expectations Hypothesis (6 points) (a) The following is a list of prices for zero-coupon riskless bonds of various maturities, all with face value of $1000. Calculate the (EAR) yields to maturity of each bond yi, y2, Vs, and ya, and the implied forward rates Ji, J2. Ja, and J Maturity (years) Prc of Bond $943.40 $898.47 $847.62 79216 (b) Using the forward rates you computed in part (a), and assuming the expectations hy pothesis is valid, what is the market's expected price of the current 4-year bond 3 years from now (when it will be a 1-year bond)
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