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Suppose that an investor observes the following prices and yields to maturity on zero coupon government bonds.
Maturity Price Yield to Maturity
1 year 97.50 2.548%
2 years 94.25 2.983
3 years 91.75 2.891
The prices are per 100 of par value; the YTM are stated on a semiannual bond basis.
A) Compute the 1y1y and 2y1y implied forward rates, stated on a semiannual bond basis.
B) The investor has a three year investment horizon and is choosing between buying the two year zero and reinvesting in another one year zero in 2 years or buying and holding to maturity the three year zero. The investor decides to buy the 2 year bond. Based on the is decision what is the minimum YTM the investor expects on one year zeros two years from now?
A stock is expected to pay the following dividends: The stock's current price (Price at year 0) should be $
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