Consider the following $1,000 par value zero-coupon bonds: Bond Year to Maturity Yield to Maturity A...
Consider the following $1,000 par value zero-coupon bonds: Bond Year to Maturity Yield to Maturity A 1 6.10% B 2 5.40% C 3 8.86% D 4 8.78% E 5 12.18% The expected one-year interest rate three years from now should be __________. 9.79 10.79 8.54 7.49
Homework Answers
E(1-year rate, 3 years from now) = [(1 + 4-year rate)4 / (1 + 3-year rate)3] - 1
= [(1 + 0.0878)4 / (1 + 0.0886)3] - 1
= [1.4002 / 1.2900] - 1 = 1.0854 - 1 = 0.0854, or 8.54%
Hence, 3rd option is correct.
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Consider the following $1,000 par value zero-coupon bonds: Bond
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