The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years. Introduction: Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

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Answer 1

Question

Chapter 15, Problem 9PS

Summary Introduction

To determine: The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years.

Introduction:

Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

Expert Solution & Answer

Answer to Problem 9PS

The forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Explanation of Solution

We have been given the following information:

Bond	Years to Maturity	YTM (%)
A	1	5
B	2	6
C	3	6.5
D	4	7

We have to calculate the expected rate. Expected rate is called as expected hypothesis. The following formula can be used for calculation.

1+Forward rateExpected return=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1)

Calculation of expected rate after one year:

Forward rate1year=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 2 ) 2 ( 1+Yield to maturit y 1 ) 1 )−1=( ( 1+6% ) 2 ( 1+5% ) 1 )−1=( ( 1+0.06 ) 2 ( 1+0.05 ) 1 )−1=( ( 1.06 ) 2 ( 1.05 ) 1 )−1=1.12361.05−1=1.0700−1=0.0700

When converted into percentages, it becomes 7%.

Calculation of expected rate after two years

Forward rate2years=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 3 ) 3 ( 1+Yield to maturit y 2 ) 2 )−1=( ( 1+6.5% ) 3 ( 1+6 ) 2 )−1=( ( 1+0.065 ) 3 ( 1+0.06 ) 2 )−1=( ( 1.065 ) 3 ( 1.06 ) 2 )−1=1.20791.1236−1=1.0750−1=0.0750

When converted into percentages, it becomes 7.5%.

Calculation of expected rate after 3 years:

The percentages have to be converted into decimals by dividing it by 100.

=( ( 1+0.07 ) 4 ( 1+0.065 ) 3 )−1=( ( 1.07 ) 4 ( 1.065 ) 3 )−1=1.310796011.20794963−1=1.0851−1=0.0851

When converted into percentages, it becomes 8.51%.

Therefore, the forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

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Answer 2

Question

Chapter 15, Problem 9PS

Summary Introduction

To determine: The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years.

Introduction:

Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

Expert Solution & Answer

Answer to Problem 9PS

The forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Explanation of Solution

We have been given the following information:

Bond	Years to Maturity	YTM (%)
A	1	5
B	2	6
C	3	6.5
D	4	7

We have to calculate the expected rate. Expected rate is called as expected hypothesis. The following formula can be used for calculation.

1+Forward rateExpected return=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1)

Calculation of expected rate after one year:

Forward rate1year=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 2 ) 2 ( 1+Yield to maturit y 1 ) 1 )−1=( ( 1+6% ) 2 ( 1+5% ) 1 )−1=( ( 1+0.06 ) 2 ( 1+0.05 ) 1 )−1=( ( 1.06 ) 2 ( 1.05 ) 1 )−1=1.12361.05−1=1.0700−1=0.0700

When converted into percentages, it becomes 7%.

Calculation of expected rate after two years

Forward rate2years=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 3 ) 3 ( 1+Yield to maturit y 2 ) 2 )−1=( ( 1+6.5% ) 3 ( 1+6 ) 2 )−1=( ( 1+0.065 ) 3 ( 1+0.06 ) 2 )−1=( ( 1.065 ) 3 ( 1.06 ) 2 )−1=1.20791.1236−1=1.0750−1=0.0750

When converted into percentages, it becomes 7.5%.

Calculation of expected rate after 3 years:

The percentages have to be converted into decimals by dividing it by 100.

=( ( 1+0.07 ) 4 ( 1+0.065 ) 3 )−1=( ( 1.07 ) 4 ( 1.065 ) 3 )−1=1.310796011.20794963−1=1.0851−1=0.0851

When converted into percentages, it becomes 8.51%.

Therefore, the forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

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Answer 3

Question

Chapter 15, Problem 9PS

Summary Introduction

To determine: The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years.

Introduction:

Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

Expert Solution & Answer

Answer to Problem 9PS

The forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Explanation of Solution

We have been given the following information:

Bond	Years to Maturity	YTM (%)
A	1	5
B	2	6
C	3	6.5
D	4	7

We have to calculate the expected rate. Expected rate is called as expected hypothesis. The following formula can be used for calculation.

1+Forward rateExpected return=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1)

Calculation of expected rate after one year:

Forward rate1year=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 2 ) 2 ( 1+Yield to maturit y 1 ) 1 )−1=( ( 1+6% ) 2 ( 1+5% ) 1 )−1=( ( 1+0.06 ) 2 ( 1+0.05 ) 1 )−1=( ( 1.06 ) 2 ( 1.05 ) 1 )−1=1.12361.05−1=1.0700−1=0.0700

When converted into percentages, it becomes 7%.

Calculation of expected rate after two years

Forward rate2years=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 3 ) 3 ( 1+Yield to maturit y 2 ) 2 )−1=( ( 1+6.5% ) 3 ( 1+6 ) 2 )−1=( ( 1+0.065 ) 3 ( 1+0.06 ) 2 )−1=( ( 1.065 ) 3 ( 1.06 ) 2 )−1=1.20791.1236−1=1.0750−1=0.0750

When converted into percentages, it becomes 7.5%.

Calculation of expected rate after 3 years:

The percentages have to be converted into decimals by dividing it by 100.

=( ( 1+0.07 ) 4 ( 1+0.065 ) 3 )−1=( ( 1.07 ) 4 ( 1.065 ) 3 )−1=1.310796011.20794963−1=1.0851−1=0.0851

When converted into percentages, it becomes 8.51%.

Therefore, the forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

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Answer 4

Question

Chapter 15, Problem 9PS

Summary Introduction

To determine: The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years.

Introduction:

Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

Expert Solution & Answer

Answer to Problem 9PS

The forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Explanation of Solution

We have been given the following information:

Bond	Years to Maturity	YTM (%)
A	1	5
B	2	6
C	3	6.5
D	4	7

We have to calculate the expected rate. Expected rate is called as expected hypothesis. The following formula can be used for calculation.

1+Forward rateExpected return=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1)

Calculation of expected rate after one year:

Forward rate1year=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 2 ) 2 ( 1+Yield to maturit y 1 ) 1 )−1=( ( 1+6% ) 2 ( 1+5% ) 1 )−1=( ( 1+0.06 ) 2 ( 1+0.05 ) 1 )−1=( ( 1.06 ) 2 ( 1.05 ) 1 )−1=1.12361.05−1=1.0700−1=0.0700

When converted into percentages, it becomes 7%.

Calculation of expected rate after two years

Forward rate2years=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 3 ) 3 ( 1+Yield to maturit y 2 ) 2 )−1=( ( 1+6.5% ) 3 ( 1+6 ) 2 )−1=( ( 1+0.065 ) 3 ( 1+0.06 ) 2 )−1=( ( 1.065 ) 3 ( 1.06 ) 2 )−1=1.20791.1236−1=1.0750−1=0.0750

When converted into percentages, it becomes 7.5%.

Calculation of expected rate after 3 years:

The percentages have to be converted into decimals by dividing it by 100.

=( ( 1+0.07 ) 4 ( 1+0.065 ) 3 )−1=( ( 1.07 ) 4 ( 1.065 ) 3 )−1=1.310796011.20794963−1=1.0851−1=0.0851

When converted into percentages, it becomes 8.51%.

Therefore, the forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

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Answer 5

Chapter 15, Problem 9PS

Summary Introduction

To determine: The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years.

Introduction:

Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

Expert Solution & Answer

Answer to Problem 9PS

The forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Explanation of Solution

We have been given the following information:

Bond	Years to Maturity	YTM (%)
A	1	5
B	2	6
C	3	6.5
D	4	7

We have to calculate the expected rate. Expected rate is called as expected hypothesis. The following formula can be used for calculation.

1+Forward rateExpected return=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1)

Calculation of expected rate after one year:

Forward rate1year=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 2 ) 2 ( 1+Yield to maturit y 1 ) 1 )−1=( ( 1+6% ) 2 ( 1+5% ) 1 )−1=( ( 1+0.06 ) 2 ( 1+0.05 ) 1 )−1=( ( 1.06 ) 2 ( 1.05 ) 1 )−1=1.12361.05−1=1.0700−1=0.0700

When converted into percentages, it becomes 7%.

Calculation of expected rate after two years

Forward rate2years=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 3 ) 3 ( 1+Yield to maturit y 2 ) 2 )−1=( ( 1+6.5% ) 3 ( 1+6 ) 2 )−1=( ( 1+0.065 ) 3 ( 1+0.06 ) 2 )−1=( ( 1.065 ) 3 ( 1.06 ) 2 )−1=1.20791.1236−1=1.0750−1=0.0750

When converted into percentages, it becomes 7.5%.

Calculation of expected rate after 3 years:

The percentages have to be converted into decimals by dividing it by 100.

=( ( 1+0.07 ) 4 ( 1+0.065 ) 3 )−1=( ( 1.07 ) 4 ( 1.065 ) 3 )−1=1.310796011.20794963−1=1.0851−1=0.0851

When converted into percentages, it becomes 8.51%.

Therefore, the forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Answer 6

Chapter 15, Problem 9PS

Summary Introduction

To determine: The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years.

Introduction:

Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

Expert Solution & Answer

Answer to Problem 9PS

The forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Explanation of Solution

We have been given the following information:

Bond	Years to Maturity	YTM (%)
A	1	5
B	2	6
C	3	6.5
D	4	7

We have to calculate the expected rate. Expected rate is called as expected hypothesis. The following formula can be used for calculation.

1+Forward rateExpected return=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1)

Calculation of expected rate after one year:

Forward rate1year=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 2 ) 2 ( 1+Yield to maturit y 1 ) 1 )−1=( ( 1+6% ) 2 ( 1+5% ) 1 )−1=( ( 1+0.06 ) 2 ( 1+0.05 ) 1 )−1=( ( 1.06 ) 2 ( 1.05 ) 1 )−1=1.12361.05−1=1.0700−1=0.0700

When converted into percentages, it becomes 7%.

Calculation of expected rate after two years

Forward rate2years=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 3 ) 3 ( 1+Yield to maturit y 2 ) 2 )−1=( ( 1+6.5% ) 3 ( 1+6 ) 2 )−1=( ( 1+0.065 ) 3 ( 1+0.06 ) 2 )−1=( ( 1.065 ) 3 ( 1.06 ) 2 )−1=1.20791.1236−1=1.0750−1=0.0750

When converted into percentages, it becomes 7.5%.

Calculation of expected rate after 3 years:

The percentages have to be converted into decimals by dividing it by 100.

=( ( 1+0.07 ) 4 ( 1+0.065 ) 3 )−1=( ( 1.07 ) 4 ( 1.065 ) 3 )−1=1.310796011.20794963−1=1.0851−1=0.0851

When converted into percentages, it becomes 8.51%.

Therefore, the forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Answer 7

Chapter 15, Problem 9PS

Summary Introduction

To determine: The market’s expectation of the yield curve as per the expectations hypothesis from now to 1 year and further calculate the expected values of next year yields on bonds after one year, two years and three years.

Introduction:

Yield-curve analysis: It is a technique to calculate the difference in interest rate between the note value and the term of to maturity.

Answer 8

Expert Solution & Answer

Answer to Problem 9PS

The forward rate after one year is 7%; after two years it is 7.5% and after three years it is 8.51%.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

We have been given the following information:

Bond	Years to Maturity	YTM (%)
A	1	5
B	2	6
C	3	6.5
D	4	7

We have to calculate the expected rate. Expected rate is called as expected hypothesis. The following formula can be used for calculation.

1+Forward rateExpected return=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1)

Calculation of expected rate after one year:

Forward rate1year=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 2 ) 2 ( 1+Yield to maturit y 1 ) 1 )−1=( ( 1+6% ) 2 ( 1+5% ) 1 )−1=( ( 1+0.06 ) 2 ( 1+0.05 ) 1 )−1=( ( 1.06 ) 2 ( 1.05 ) 1 )−1=1.12361.05−1=1.0700−1=0.0700

When converted into percentages, it becomes 7%.

Calculation of expected rate after two years

Forward rate2years=( ( 1+Yield to maturit y Number of years ) Number of years ( 1+Yield to maturit y Number of years−1 ) Number of years−1 )−1=( ( 1+Yield to maturit y 3 ) 3 ( 1+Yield to maturit y 2 ) 2 )−1=( ( 1+6.5% ) 3 ( 1+6 ) 2 )−1=( ( 1+0.065 ) 3 ( 1+0.06 ) 2 )−1=( ( 1.065 ) 3 ( 1.06 ) 2 )−1=1.20791.1236−1=1.0750−1=0.0750