$1,000 par value zero-coupon bonds (ignore liquidity premiums)Bond Years to MaturityYield to Maturity6.00%7.50%7.99%ABCDEMultiple ChoiceO12345The expected 2-year interest rate 3 years from now should beO29.55%11.74%14.89%8.49%10.70%13.73%

According to expectation theory, short term interest rate must align with long term interest rate.

Answered: 51,000 par value zero-coupon Years to…

51,000 par value zero-coupon Years to Maturity Bond ABCDE 12345 Yield to Maturity 6.00% 7.50% 7.99% 8.49% 10.70% The expected 2-year interest rate 3 years from now should be

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 5P: Default Risk Premium A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

$1,000 par value zero-coupon bonds (ignore liquidity premiums)
Bond Years to Maturity
Yield to Maturity
6.00%
7.50%
7.99%
ABCDE
Multiple Choice
O
12345
The expected 2-year interest rate 3 years from now should be
O
2
9.55%
11.74%
14.89%
8.49%
10.70%
13.73%

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