Suppose that today (3/11/20) the current ytm on a bond that matures in one year rate...
Suppose that today (3/11/20) the current ytm on a bond that matures in one year rate is 4% and the ytm on a bond that matures in two years is 7%. If the PEH is correct, then the expected ytm one year from today (3/11/21) on a bond that matures in one year rate from then (3/11/22) is _________ %
Homework Answers
To calculate expected ytm one year from today (3/11/21) on a bond that matures in one year rate from then (3/11/12) is calculated as below
7%=(4%+x%)/2
14%=4%+x%
x=10%
where x% is the ytm on a bond that matures in one year from end of this year
Hence if PEH is correct then the expected ytm is 10%
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