The yield curve for zero-coupon US treasuries is as follows: Maturity: Yield to maturity: 1.5% 6...
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The yield curve for zero-coupon US treasuries is as follows: Maturity: Yield to maturity: 1.5% 6 months 1 year 2 years 3 years 1.75% 2.00% 2.25% 4 years 2.35% • (a) According to the expectations hypothesis, what do markets expect the one-year-yield-to-maturity to be two years from now? (2 points). • (b) What is the price today of US treasury bond with face value $1000-that- pays 2.0% annual coupons and matures in 3 years, assuming no arbitrage? (3. points). (c) What is the return for the coupon bond in part(b) over the next year if the yield curve one year from now is the same as the yield curve today. (i.., one- year from now, zero coupon bonds with one year to maturity will have a 1.75%* YTM)? (3 points). The yield curve for zero-coupon US treasuries is as follows: Maturity: Yield to maturity: 1.5% 6 months 1 year 2 years 3 years 1.75% 2.00% 2.25% 4 years 2.35% • (a) According to the expectations hypothesis, what do markets expect the one-year-yield-to-maturity to be two years from now? (2 points). • (b) What is the price today of US treasury bond with face value $1000-that- pays 2.0% annual coupons and matures in 3 years, assuming no arbitrage? (3. points). (c) What is the return for the coupon bond in part(b) over the next year if the yield curve one year from now is the same as the yield curve today. (i.., one- year from now, zero coupon bonds with one year to maturity will have a 1.75%* YTM)? (3 points).
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Related Book For
Fundamentals of Financial Management
ISBN: 978-1337395250
15th edition
Authors: Eugene F. Brigham, Joel F. Houston
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