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Twelve month interest rates for the next three years are expected to be 6%, 6.5%, and 7.4% respectively. Show that the yields to maturity on:
Twelve month interest rates for the next three years are expected to be 6%, 6.5%, and 7.4% respectively. Show that the yields to maturity on:
i) a pure discount three year bond, and
ii) a three year 6% annual coupon bond
are 6.632% and 6.605% respectively.
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