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You are considering investing in a 19% coupon rate bond with annual coupons, a three-year maturity and a face value of 1000. You observe the
You are considering investing in a 19% coupon rate bond with annual coupons, a three-year maturity and a face value of 1000. You observe the following rates for discount, or zero-coupon, bonds:
Time To Maturity | 1 year | 2 years | 3 years |
Zero-Coupon Bond YTM | 4.6% | 4.4% | 3.8% |
(a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What does the market expect the 1 year rate to be in 1 year from now? (d) What does the market expect the 1 year rate to be in 2 years from now? (e) What does the market expect the 2 year rate to be in 1 year from now?
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