) Assuming that the expectations hypothesis is valid, compute the expected price of the four-year zero coupon bond shown below at the end of (i) the first year, (ii) the second year, (iii) the third year, (iv) the fourth year (round answers to 2 decimal places). Beginning of Year Price of Bond Expected Price 1 $920.90 2 $912.97 3 $826.62 4 $785.62 b) What is the rate of return of the bond in years 1, 2, 3, and 4? Conclude that the expected return equals the forward rate for each year (write answer as percentage, rounded to 2 decimal places). Beginning of Year Expected Rate of Return 1 ?% 2 ?% 3 ?% 4 ?%
) Assuming that the expectations hypothesis is valid, compute the expected price of the four-year zero coupon bond shown below at the end of (i) the first year, (ii) the second year, (iii) the third year, (iv) the fourth year (round answers to 2 decimal places). Beginning of Year Price of Bond Expected Price 1 $920.90 2 $912.97 3 $826.62 4 $785.62 b) What is the rate of return of the bond in years 1, 2, 3, and 4? Conclude that the expected return equals the forward rate for each year (write answer as percentage, rounded to 2 decimal places). Beginning of Year Expected Rate of Return 1 ?% 2 ?% 3 ?% 4 ?%
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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a) Assuming that the expectations hypothesis is valid, compute the expected price of the four-year zero coupon bond shown below at the end of (i) the first year, (ii) the second year, (iii) the third year, (iv) the fourth year (round answers to 2 decimal places).
| Beginning of Year | Expected Price | |
| 1 | $920.90 | |
| 2 | $912.97 | |
| 3 | $826.62 | |
| 4 | $785.62 |
b) What is the
| Beginning of Year | Expected Rate of Return |
| 1 | ?% |
| 2 | ?% |
| 3 | ?% |
| 4 | ?% |
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