Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $95.43, while a...

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Suppose that a 1-year zero-coupon bond with face value $100currently sells at $95.43, while a 2-year zero sells at $77.31. Youare considering the purchase of a 2-year-maturity bond makingannual coupon payments. The face value of the bond is$100, and the coupon rate is 12.5% per year.
a. What is the yield to maturity of the 2-yearzero?(Do not round intermediate calculations. Round youranswers to 3 decimal places.)
b. What is the yield to maturity of the 2-yearcoupon bond? (Do not round intermediate calculations. Roundyour answers to 3 decimal places.)

c. What is the forward rate for the second year?(Do not round intermediate calculations. Round your finalanswer to 2 decimal places.)

d. If the expectations hypothesis is accepted,what are (1) the expected price of the coupon bond at the end ofthe first year and (2) the expected holding-period return on thecoupon bond over the first year? (Do not round intermediatecalculations. Round your answers to 2 decimal places.)
e. Will the expected rate of return be higheror lower if you accept the liquidity preference hypothesis?
Higher
Lower

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Suppose that a 1-year zero-coupon bond with face value $100currently sells at $95.43, while a 2-year zero sells at $77.31. Youare considering the purchase of a 2-year-maturity bond makingannual coupon payments. The face value of the bond is$100, and the coupon rate is 12.5% per year.a. What is the yield to maturity of the 2-yearzero?(Do not round intermediate calculations. Round youranswers to 3 decimal places.)b. What is the yield to maturity of the 2-yearcoupon bond? (Do not round intermediate calculations. Roundyour answers to 3 decimal places.)c. What is the forward rate for the second year?(Do not round intermediate calculations. Round your finalanswer to 2 decimal places.)d. If the expectations hypothesis is accepted,what are (1) the expected price of the coupon bond at the end ofthe first year and (2) the expected holding-period return on thecoupon bond over the first year? (Do not round intermediatecalculations. Round your answers to 2 decimal places.)e. Will the expected rate of return be higheror lower if you accept the liquidity preference hypothesis?HigherLower