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5p) Assume the interest rates of three bonds with three different maturities are: 1 year...

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Finance

5p) Assume the interest rates of three bonds with three different maturities are: 1 year 4.5% 2 year 5% 5 year 6.5% a) (3p) Using expectations theory, what would the expected interest rate be between year 2 and 5? (to motivate your calculation, include a description of the theory in the answer)

b) (2p) How high is an investors (monthly) return if the 1 year bond is purchased at t0 and is held for a month before it is sold? (Assume market interest rate does not change)

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