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Compute the two-year implied forward rate

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Reference no: EM132580259

The spot rates of interest for five Canada Bonds are shown in the following table. Assume all securities pay interest annually:

Term to Maturity(yrs) Spot Rate of Interest

1 13.00%
2 12.00%
3 11.00%
4 10.00%
5 9.00%

(a) Compute the two-year implied forward rate for a deferred loan beginning in three years.

(b) Explain your answer by using the expectations theory.

(c) Compute the price of a five-year annual-pay Canada bond with a coupon rate of 9 percent by using the information in the table

Reference no: EM132580259

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