1. Suppose that people expect the one-year interest rate will equal 1% forever. a. Consider a ten-year zero coupon (discount) bond with a face value of $1000. The bond has a current price of $910. Is the term premium positive or negative? b. Redo question (a), assuming that the bond has a current price of $900.

1. Suppose that people expect the one-year interest rate will equal 1% forever. a. Consider a ten-year zero coupon (discount) bond with a face value of $1000. The bond has a current price of $910. Is the term premium positive or negative? b. Redo question (a), assuming that the bond has a current price of $900.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 13PAE

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