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Suppose you observe the following for today's term structure for risk-free securities: 1-YEAR ZERO-COUPON BOND - EFFECTIVE ANNUAL YTM OF 2.6% 2 YEAR ZERO-COUPON BOND

Suppose you observe the following for today's term structure for risk-free securities:

1-YEAR ZERO-COUPON BOND - EFFECTIVE ANNUAL YTM OF 2.6%

2 YEAR ZERO-COUPON BOND - EFFECTIVE ANNUAL YTM OF 2.4%

3YEAR ZERO-COUPON BOND - EFFECTIVE ANNUAL YTM OF 2.2%

a. suppose you believe that the term structure next year will be the same as today's term structure. If today you buy 3-year zero coupon bond, what di toy expect your holding period return will be between now and one year from today?

b. What should be today's yield to maturity on 3-year, 8% annual coupon risk-free bond?

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