What do you expect the rate of return to be over the coming year on a 3-year zer

Question

What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? (Round your answers to 2 decimal places. Omit the "%" sign in your response

Is the market's expectation of the return on the 3-year bond greater or less than yours?

Explanation / Answer

a.What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Expect the rate of return to be over the coming year on a 3-year zero-coupon bond = 6.1%

b Under the expectations theory, what yields to maturity does the marketexpect to observe on 1- and 2-year zeros at the end of the year?(Round your answers to 2 decimal places. Omit the "%" sign in your response

Yields to maturity does the marketexpect to observe on 1-year at the end of the year = (1+5.1%)^2/(1+4.1%) - 1

Yields to maturity does the marketexpect to observe on 1-year at the end of the year = 6.11%

Yields to maturity does the marketexpect to observe on 2-year at the end of the year = ((1+6.1%)^3/(1+4.1%))^(1/2) - 1

Yields to maturity does the marketexpect to observe on 2-year at the end of the year = 7.11%

2b) Is the market's expectation of the return on the 3-year bond greater or less than yours?

Greater

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.