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The yield to maturity on one - year zero - coupon bonds is 8 . 1 % . The yield to maturity on two -
The yield to maturity on oneyear zerocoupon bonds is The yield to maturity on twoyear zerocoupon bonds is
Required:
a What is the forward rate of interest for the second year? Do not round intermediate calculations. Round your answer to decimal places.
Forward rate of interest
b If you believe in the expectations hypothesis, what is your best guess as to the expected value of the shortterm interest rate next year? Do not round intermediate calculations. Round your answer to decimal places.
Shortterm interest rate
c If you believe in the liquidity preference theory, is your best guess as to next year's shortterm interest rate higher or lower than in b
Lower
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