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1 year Consider the following current yield curve Maturity Yield 8% 2 years 996 3 years 10% 1. Find the following forward rates: one-year forward

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1 year Consider the following current yield curve Maturity Yield 8% 2 years 996 3 years 10% 1. Find the following forward rates: one-year forward rate att - 1 year, and one year forward rate att-2 years. You need to compute the forward rote between time 1 and 2 the forward rate between time 2 and 3. (4 points) 2. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate. what will the yield to maturity on one-year Zero-coupon bond be next year? (2 points) 3. If you purchase a 3-year zero-coupon bond now and hold it for two years, what is the realized compound rate of return after two years? Assume that you could sell the bond after two years at the one year forward rate attimet - 2 years (... yield to maturity after 2 years is equal to the forward rate between time 2 and 377 Hint Compute the current value of the bond and the cash flow ofter tvo years. (3 points) Note: If you prefer to put just the answer without the steps, that is fine. Providing the steps may get you partial credit in case your numerical answer is wrong 1 year Consider the following current yield curve Maturity Yield 8% 2 years 996 3 years 10% 1. Find the following forward rates: one-year forward rate att - 1 year, and one year forward rate att-2 years. You need to compute the forward rote between time 1 and 2 the forward rate between time 2 and 3. (4 points) 2. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate. what will the yield to maturity on one-year Zero-coupon bond be next year? (2 points) 3. If you purchase a 3-year zero-coupon bond now and hold it for two years, what is the realized compound rate of return after two years? Assume that you could sell the bond after two years at the one year forward rate attimet - 2 years (... yield to maturity after 2 years is equal to the forward rate between time 2 and 377 Hint Compute the current value of the bond and the cash flow ofter tvo years. (3 points) Note: If you prefer to put just the answer without the steps, that is fine. Providing the steps may get you partial credit in case your numerical answer is wrong

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