Consider spot rates for three zero-coupon bonds

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1. Consider spot rates for three zero-coupon bonds: r(1) = 3%, r(2) = 4%, and r(3) = 5%. Which statement below is correct? The forward rate for a one-year loan beginning in one year will be:

Less than the forward rate for a one-year loan beginning in two years.

Greater than the forward rate for a two-year loan beginning in two years.

Greater than the forward rate for a one-year loan beginning in two years.

2. You just purchased a bond that matures in 10 years. The bond has a face value of $1,000 and has a 7.70% annual coupon. The bond has a current yield of 8.80%. What is the bond’s yield to maturity?

10.68%

8.80%

7.70%

8.74%

9.71%

Reference no: EM131938677

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