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What will be the yield to maturity on the bond

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Reference no: EM132459662

The yield to maturity on one-year zero-coupon bonds is currently 7 percent; the YTM on two-year zeroes is 8 percent. The federal government plans to issue a two-year-maturity coupon bond, paying coupons once per year with a coupon rate of 9 percent. The face value of the bond is $100.

  1. At what price will the bond sell?
  2. What will be the yield to maturity on the bond? 8%
  3. If the expectations theory of the yield curve is correct, what is the market expectation of the price that the bond will sell for next year? 99.99
  4. If the liquidity preference theory is correct and you believe that the liquidity premium is 1 percent, what is the market expectation of the price that the bond will sell for next year?

Reference no: EM132459662

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