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The following table shows the current prices for zero - coupon bonds with different maturities as of January 1 , 2 0 1 8 .

The following table shows the current prices for zero-coupon bonds with different maturities as of January 1,2018. The bonds are identical in every respect except for the time to maturity. All of the bonds will be redeemed at their par value of 100 upon redemption.
Term to Maturity (year)1234510
Spot Price ()96.6291.5786.3880.7274.7352.77
3.1
3.2
3.3
B
Compute the yield to maturity (YTM) for these bonds. Draw the yield curve and briefly discuss how the yield curve describes the implications in terms of the expectations as well as the liquidity preference hypotheses.
(12%)
What are the two important conditions or assumptions behind for you to realize these promised YTM? If these two conditions or assumptions are not met, what kind of risk would you have?
(5%)
Compute the implied forward two-year rate of interest at January 1,2021. Describe the conditions under which the calculated forward rate would be an unbiased estimate of the two-year spot rate of interest at January 1,2021.

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