Business, 08.04.2021 18:40 TheBugDa

5. Imagine that the following Treasury bonds are available: Maturity Coupon Rate Price 1 0% $ 94.340 3 9.5% $105.403 3 0% $ 80.496 Maturity is in years, coupons are paid annually, and prices are quoted per $100 face value. (a) Construct the three-year spot yield curve. State the results as effective annual rates. (b) Use the curve in part (a) to compute the implied one-year forward rates in the yield curve, 1f1 and 2f1. (c) You plan to invest $1 million in a 3-year 7% coupon bond (annual coupon payments), and plan to sell it at the end of two years. At the time that you sell it, it will only have one coupon payment left. Using your calculations in parts (a) and (b), calculate the arbitrage-free holding period return (i. e., the total dollar return you will earn if future market rates equal the implied forward rates in the yield curve).

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5. Imagine that the following Treasury bonds are available: Maturity Coupon Rate Price 1 0% $ 94.340...

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