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Calculate the gross redemption yields of 1-year

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Short-term, one-year annual effective interest rates are currently 8%; they are expected to be 7% in one year time, 6% in two year time and 5% in three year time.

(A) Calculate the gross redemption yields of 1-year, 2-year, 3-year and 4-year zero coupon bonds assuming the expectations theory explanation of the yield curve holds.

(B) The price of a coupon paying bond is calculated by discounting individual payments from the bond at the zero-coupon bond yields in

(A). Calculate the gross redemption yield of a bond that is redeemed at par in exactly four years and pays a coupon of 5 per annum annually in arrear

Reference no: EM132516483

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