Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $94.34,
A.What is the yield to maturity of the 2-year zero? The 2-year coupon bond?
B.What is the forward rate for the second year?
C.If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year?
D.Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?