Answer Happy

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?