Find the current term-structure of interest rates

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A one-year zero-coupon bond has YTM 2%, a 2-year 5%-coupon bond has YTM 3.95%, and a three-year 5%-coupon bond has YTM 3.49%. All bonds have annual payments.

i. Find the current term-structure of interest rates.

ii. Suppose the Expectation hypothesis holds. What are your best estimates of the future spot rates in1 and 172?

iii. Suppose the term-structure stays the same for a year. Compute the one-year return on the three-year 5%-coupon bond.

Reference no: EM133070000

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