What are the interest rates today on a 2-year bond

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Reference no: EM13203520

assume that the interest rate on a one year bond is 7 percent today and the interest rates expected on one year bonds in the future are 6 percents in 1-year, 5 percent in 2-year , and 4 percent in three years bond.

a. according to the exceptions theory of the term structure, what are interest rate today on a 2-year bond, a 3- year bond and a 4- year bond?

b. if the term premium is equal to 0.5% times the number of years to maturity of a bond for times to maturity of two, three, and four years, what are the interest rates today on a 2-year bond, and 3-year bond, and a 4- year bond?

Reference no: EM13203520

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