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The following is a list of today's prices for the Russian zero-coupon government bonds with face value $1000 of various maturities. Maturity One-year bond
The following is a list of today's prices for the Russian zero-coupon government bonds with face value $1000 of various maturities. Maturity One-year bond Two-year bond Three-year bond Four-year bond Five-year bond Ten-year bond Market Prices $600 $700 $900 $880 $820 $780 a. Plot the yield curve. [Hint: Calculate the forward rates for the second year, the third year, and etc.] b. As the Russian-Ukraine war is ongoing, a market analyst uses the yield curve to predict that the war is expected to last for three years but will end four years from today. Evaluate the validity of this prediction. c. You are considering the purchase of a Russian 2-year-maturity government bond making annual coupon payments. The face value of the bond is $1000, and the coupon rate is 12% per year. According to the expectations hypothesis, what are (i) the expected price of the coupon bond at the end of first year, and (ii) the expected holding-period return on the coupon bond over the first year?
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