9. Consider the following $1,000 par value zero-coupon bonds: Bond ABCDE Years to Maturity 1 2345. 3 Yield to Maturity 7.00% 8.50% 9.00% 9.50% 10.50% A- What the expected 1-year interest rate 2 years from now (i.e., forward rate during year 3) should be?

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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J 3 I got 10.01% for part a.
9. Consider the following $1,000 par value zero-coupon bonds:
Years to Maturity
1
2
Bond
ABCDE
3
4
5
Yield to Maturity
7.00%
8.50%
9.00%
9.50%
10.50%
A- What the expected 1-year interest rate 2 years from now (i.e., forward rate during year 3) should
be?
B-If the term structure remains the same next year, what will be the return of investment for a 2-year
zero coupon bond bought today?
Transcribed Image Text:9. Consider the following $1,000 par value zero-coupon bonds: Years to Maturity 1 2 Bond ABCDE 3 4 5 Yield to Maturity 7.00% 8.50% 9.00% 9.50% 10.50% A- What the expected 1-year interest rate 2 years from now (i.e., forward rate during year 3) should be? B-If the term structure remains the same next year, what will be the return of investment for a 2-year zero coupon bond bought today?
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