Consider the following $1,000 par value zero-coupon bonds: Years until Yield to Bond Maturity Maturity A 1 9.258 B с Interest rate 2 3 4 Required: a. According to the expectations hypothesis, what is the market's expectation of the one-year interest rate three years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Maturity (years) 1 2 3 10.25 10.75 11.25 b. What are the expected values of next year's yields on bonds with maturities of (a) 1 year; (b) 2 years; (c) 3 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) YTM % % % %

Consider the following $1,000 par value zero-coupon bonds: Years until Yield to Bond Maturity Maturity A 1 9.258 B с Interest rate 2 3 4 Required: a. According to the expectations hypothesis, what is the market's expectation of the one-year interest rate three years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Maturity (years) 1 2 3 10.25 10.75 11.25 b. What are the expected values of next year's yields on bonds with maturities of (a) 1 year; (b) 2 years; (c) 3 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) YTM % % % %

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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3. The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. Suppose the interest rate is compounded once per year. Maturity (Years) Price ($) 970 960 910 870 1 2 3 4 Answer the following questions: (a) What is, according to the expectations theory, the one-year interest rate in the second year? (b) What is, according to the expectations theory, the one-year interest rate in the third year? (c) What is, according to the expectations theory, the one-year interest rate in the forth year?
A 6.60 percent coupon bond with 15 years left to maturity is priced to offer a 5.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? (Assume interest payments are semiannual) (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return S 10 47 What would be the total return of the bond in percent? (Assume interest payments are semiannual) (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return
What is the answer ?
The yield curve for default-free zero-coupon bonds is currently as follows: Maturity (years) YTM 1 9.8% 2 10.8 3 11.8 Required: a. What are the implied one-year forward rates? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Maturity (years) YTM Forward rate 1 9.8% 2 3 10.8% 11.8% % % b. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will the pure yield curve (that is, the yields to maturity on one- and two-year zero-coupon bonds) be next year? O There will be a shift upwards in next year's curve. O There will be a shift downwards in next year's curve. O There will be no change in next year's curve. c. What will be the yield to maturity on two-year zeros? (Do not round intermediate calculations. Round your answers to 2 decimal places.) YTM % d. If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current…
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2022. All of the bonds have a par value of $1,000 and pay semiannual coupons. Rate ?? 5.952 6.133 Maturity Month/Year May 31 May 34 May 40 Bid Asked 103.4534 103.5262 104.4874 104.6331 ?? ?? Change Ask Yield +.3222 +.4221 +.5327 5.879 ?? 3.911 In the above table, find the Treasury bond that matures in May 2034. What is your yield to maturity if you buy this bond? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Yield to maturity %
Refer to the following table. Maturity (years) Zero-coupon YTM=r Suppose you wanted to lock in an interest rate for an investment that begins in one year and matures in five years. What rate would you obtain if there were no arbitrage opportunities? 1 3.96% The rate for an investment that begins in one year and matures in five years would be. (Round the final answer two decimal places. Round all intermediate values to four decimal places as needed.) K 2 5.73% 3 5.73% 4 5.21% 5 4.68%
9
Finance Suppose that the price of 3-year zero-coupon bonds is 1000 pounds. What is the forward rate for the third year? How would you construct a synthetic 1-year forward loan that commences at t= 2 and matures at t= 3
Provide table solutions
One-year Treasury securities yield 2.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 3.4%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. %
Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity 1 YTM(%) 5.6% 2 3 4 6.6 7.1 7.6 According to the expectations hypothesis, what is the market's expectation of the yield curve one year from now? Specifically, what are the expected values of next year's yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) APCO D Bond Years to Maturity YTM (%) B 1 % C 2 % D 3 %
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