The 1-year forward interest rates are as follows: Year 1 2 3 4 5 6 Interest rate
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The 1-year forward interest rates are as follows:
Year 1 2 3 4 5 6 Interest rate 3% 4% 5% 6% 6% 6%
Year 7 8 9 10 11 12 Interest rate 7% 7% 7% 6% 5% 4%
(a) Draw the yield curve.
(b) Compute the 12 n-year compounded holding rates of return from now to year n.
(c) Compute the 12 annualized rates of return.
(d) Is there anything wrong in this example?
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