The yield curve for default-free zero-coupon bonds is currently as follows: Maturity (years) YTM Forward rate 1 10% 2 3 11 12.01% 12 14.03% Yield to maturity on two-year zeros: YTM = 13.01% Required: a. 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 and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to the nearest whole percent.) b. If you purchase a three-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to the nearest whole percent.)
The yield curve for default-free zero-coupon bonds is currently as follows: Maturity (years) YTM Forward rate 1 10% 2 3 11 12.01% 12 14.03% Yield to maturity on two-year zeros: YTM = 13.01% Required: a. 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 and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to the nearest whole percent.) b. If you purchase a three-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to the nearest whole percent.)
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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Transcribed Image Text:The yield curve for default-free zero-coupon bonds is currently as follows:
Maturity (years) YTM Forward rate
10%
1
2
3
11
12.01%
12 14.03%
Yield to maturity on two-year zeros: YTM = 13.01%
Required:
a. 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 and expected
future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to the nearest whole percent.)
b. If you purchase a three-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint: Compute the current and expected
future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to the nearest whole percent.)
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