Today is time t. You are given the following expected interest rates. i = 3%, 1₁, 1+1=4.5%, %, 1²2,1+4= 4% According to the expectation theory, what is the expected interest rate (in %) of a five-year bond a year from today, i5, +1? Round your answer to at least 2 decimal places.

Today is time t. You are given the following expected interest rates. i = 3%, 1₁, 1+1=4.5%, %, 1²2,1+4= 4% According to the expectation theory, what is the expected interest rate (in %) of a five-year bond a year from today, i5, +1? Round your answer to at least 2 decimal places.

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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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

Today is time t. You are given the following expected interest rates.
% ₂ 1 23,1+1=4.5%, 1²
According to the expectation theory, what is the expected interest rate (in %) of a five-year bond a year from today, i,+1? Round your answer to at least 2 decimal places.
i=3%,
· 12₁1+4=
,=4%

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