Compare to current yield-to-maturity on a one-year strips

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Use the following information to answer the next question: U.S. Treasury STRIPS, close of business Aug 15, 2016:

Maturity                   Price

Aug 17                     99.560

Aug 18                     98.532

Aug 19                     96.347

Aug 20                    94.558

Aug 21                    92.065

Aug 22                    89.533

According to the pure expectations theory of interest rates, how much would you expect to pay for a one-year STRIPS on Aug 15, 2017? What is the corresponding implied forward rate? How does your answer compare to the current yield-to-maturity on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates.

Reference no: EM131306565

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