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Yield on two-year zero-coupon bonds

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Reference no: EM133111759

The yield on one-year zero-coupon bonds is 4.5% and the yield on two-year zero-coupon bonds is 7.5%.

(a) What is the one-year forward rate (the rate you can lock in today to borrow or lend for a year starting one year from now)?

(b) According to the Expectations Hypothesis, what do investors expect the yield on one-year zero-coupon bonds to be next year?

(c) What is the price of a two-year annual-pay 15% coupon bond with face value $100?

Reference no: EM133111759

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