Market expectations about future spot interest rates

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According to the pure expectations theory of interest rates, you expect to pay $98.08 for a one-year STRIPS on February 15, 2011. With a one year rate of 1.95%, what is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Show your work, as to prove understanding of the required concepts and formulas.

Reference no: EM131879672

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