The current yield curve for default free zero coupon bonds is as follows: ...
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Finance
The current yield curve for default free zero coupon bonds is as follows:
| Maturity (years) | Yield to Maturity |
|---|---|
| 1 | 10% |
| 2 | 11% |
| 3 | 12% |
Question:
1a) What is the two year forward rate, one year from today (ie the interest rate between years 1 and 3)?
1b) If you purchase a two year zero coupon bond now, what is the expected total rate of return over the next year? (You can assume that the par value is $100)
1c) If you purchase a three year zero coupon bond now, what is the expected total rate of return over the next year? (You can assume that the par value is $100)
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