You want to invest in zero-coupon risk-free bonds for the next 5 years. The 5-year spot rate
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Question:
You want to invest in zero-coupon risk-free bonds for the next 5 years. The 5-year spot
rate is 3.5%. The 3-year spot rate is 3.0%. if you purchase a 3-year zero-coupon bond
(bond A) and then reinvest your proceeds in a 2-years zero-coupon bond (bond B) when
bond A matures, what do you expect the spot rate to be on bond B?
How do you solve? and what formula is used to do so?
Related Book For
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
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