**1-Year Forward Rates**| Year | Rate ||------|-------|| 1 | 4.6% || 2 | 4.9% || 3 | 5.2% || 4 | 5.5% || 5 | 6.8% |**Question:** What is the yield to maturity of a 2-year bond?**Explanation:**The table illustrates the forward rates for one-year periods over a five-year span. Each year's rate represents the expected interest rate for a one-year investment starting at that future year.To calculate the yield to maturity (YTM) of a 2-year bond, one would typically use these forward rates to determine the average rate over the 2-year period. This involves considering the compounding effect of the annual rates over the bond's term.

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1-Year Forward Year Rate 1 4.6% 2 4.9% SIDEN 3 4 5 5.2% 5.5% 6.8% What is the yield to maturity of a 2-year bond?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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