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What is the current spread on the bond

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Reference no: EM132937370

Question -

(a) The YTM on a three year bond is 5%. What is the average expected short rate over the life of the bond assuming the expectations hypothesis holds?

(b) Suppose that the YTM of a three year bond is expected to increase by 2% over the year. Assuming the expectations hypothesis holds, what is the current spread on the bond (the gap between the bond YTM and the current short rate)?

Reference no: EM132937370

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