Consider a 2-year bond whose par value is $1,000 and coupon rate is 6% per year, payable semi-annually. The bond's curre
Posted: Sat Nov 27, 2021 5:23 pm
Consider a 2-year bond whose par value is $1,000 and coupon rate
is 6% per year, payable semi-annually. The bond's current price is
such that its yield to maturity is 5.50% p.a., continuous
compounding. Suppose also that the current term structure of spot
interest rates is as follows:
Term (years)---- Rate (% p.a.,continuous compounding)
0.50--- 4.445%
1.00--- 4.740%
1.50--- 5.060%
Under the Unbiased Expectation Hypothesis, how much do you expect
the three-month spot rate to be in 18 months from now?
is 6% per year, payable semi-annually. The bond's current price is
such that its yield to maturity is 5.50% p.a., continuous
compounding. Suppose also that the current term structure of spot
interest rates is as follows:
Term (years)---- Rate (% p.a.,continuous compounding)
0.50--- 4.445%
1.00--- 4.740%
1.50--- 5.060%
Under the Unbiased Expectation Hypothesis, how much do you expect
the three-month spot rate to be in 18 months from now?