Q1 In the following computations you may assume risk premia are zero and the expectations hypothesis holds a) If the exp

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Q1 In The Following Computations You May Assume Risk Premia Are Zero And The Expectations Hypothesis Holds A If The Exp 1 (161.18 KiB) Viewed 64 times

Q1 In the following computations you may assume risk premia are zero and the expectations hypothesis holds a) If the expected (ex ante) real rate of interest is 3% during the next year and nominal short rates for the year are 5% what is the expected rate of inflation? b) Explain in one line yield to maturity in intuitive approximate and simple terms. A 2 year discount bond has a face value of 1000 and a price of 900. What is its yield to maturity? c) A 2 year bond has a yield to maturity of 2%, a face value of 100 and a coupon rate of 1%. What is its current price? d) A consol pays a coupon of 1 per year. If short (one year) interest rates are 1% and expected to stay like that for the infinite future what is the price of the consol today?