The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. Suppose the interest rate is compounded once per year   Answer the following questions: (a) What is, according to the expectations theory, the one-year interest rate in the second year?  (b) What is, according to the expectations theory, the one-year interest rate in the third year? (c) What is, according to the expectations theory, the one-year interest rate in the forth year?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The following is a list of prices for zero-coupon bonds with different maturities and par value
of $1,000. Suppose the interest rate is compounded once per year

 

Answer the following questions:


(a) What is, according to the expectations theory, the one-year interest rate in the second
year? 


(b) What is, according to the expectations theory, the one-year interest rate in the third year?


(c) What is, according to the expectations theory, the one-year interest rate in the forth year?

Maturity (Years)
1
23
4
Price ($)
950
920
900
875
Transcribed Image Text:Maturity (Years) 1 23 4 Price ($) 950 920 900 875
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