Expected price of the coupon bond at the end of first year

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Reference no: EM131892736

Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.44, while a 2-year zero sells at $81.59. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 9% per year

a. What is the yield to maturity of the 2-year zero? The 2-year coupon bond

b. What is the forward rate for the second year

c. If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year?

Reference no: EM131892736

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