Please use this information for the next 2 questions.At your favorite bond store, UWM Bonds, you see the following prices:One year zero selling for $90.29Three year 10% coupon $1,000 par bond selling for $1,000Two year 11% coupon $1,000 par bond selling for $1,000Assume that the expectations theory of interest rates holds, no liquidity premium exists, and that the bonds are equally risky and liquid. What is the current one-year rate?

Current one year rate can be calculated as the yield of the zero-coupon bond. Zero coupon bonds are…

Answered: What is the current one-year rate?

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What is the current one-year rate?

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter11: Bond Pricing And Amortization (bonds)

Section: Chapter Questions

Problem 3R

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Please use this information for the next 2 questions.

At your favorite bond store, UWM Bonds, you see the following prices:

One year zero selling for $90.29
Three year 10% coupon $1,000 par bond selling for $1,000
Two year 11% coupon $1,000 par bond selling for $1,000

Assume that the expectations theory of interest rates holds, no liquidity premium exists, and that the bonds are equally risky and liquid. What is the current one-year rate?

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