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The current yield curve for default - free zero - coupon bonds is as follows: Maturity ( Years ) YTM ( ) 6 . 5
The current yield curve for defaultfree zerocoupon bonds is as follows: Maturity Years YTM Required: What are the implied tyear forward rates? b Assume that the pure expectations hypothesis of the term structure is correctIf market expectations are accurate, what will be the yield to maturity on year zerocoupon bonds next year? Assume that the pure expectations hypothesis of the term structure is correctIf market expectations are accurate, what will be the vield to maturity on year zerocoupon bonds next year? d If you purchase a year zero coupon bond now, what is the expected total rate of return over the next year? Hint: Compute the current and expected future prices Ignore taxes. e What is the expected total rate of return over the next year on a year zerocoupon bond? What should be the current price of a year maturity bond with a coupon rate paid annually? g If you purchased the coupon bond at the price you computed in part what would your total expected rate of return be over the next year coupon plus price change Ignore taxes.
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