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Canada bonds represent a significant holding in many pension portfolios

Canada bonds represent a significant holding in many pension portfolios. You decide to analyze the yield curve for Canada bonds.

a. Using the data in the table below, calculate the five- year spot and forward rates assuming annual compounding. Show your calculations.

b. Define and describe each of the following three concepts:

• Yield to maturity

• Spot rate

• Forward rate Explain how these three concepts are related.

c. You are considering the purchase of a zero- coupon Canada bond with four years to maturity. On the basis of above yield curve analysis, calculate both the expected yield to maturity and the price for the security. Show your calculations.

a. Using the data in the table below, calculate the five- year spot and forward rates assuming annual compounding. Show your calculations.

b. Define and describe each of the following three concepts:

• Yield to maturity

• Spot rate

• Forward rate Explain how these three concepts are related.

c. You are considering the purchase of a zero- coupon Canada bond with four years to maturity. On the basis of above yield curve analysis, calculate both the expected yield to maturity and the price for the security. Show your calculations.

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