Problem 4: Par values of both the 1-Year zero and the 2-Year zero are $1,000. Suppose that the short rate today is 3 percent and the expected short rate next year is 5 percent.
A. Find the price of the 2-Year zero under the Expectations Hypothesis.
B. Find the price at which the 2-Year zero can be sold after holding it for one year under the Expectations Hypothesis.
C. Suppose a short term-investor (one that is interested only in 1-Year investments) is willing to pay $880 for the 2-Year zero. Find the expected holding period return given this price that the investor is willing to pay.
D. Find the risk-premium implied by the expected holding period return.
E. Find the yield to maturity of the 2-Year zero given the par value and the price that the investor demands.
F. Find the forward rate implied by this yield to maturity.
G. Find the Liquidity Premium resulting from this forward rate.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more