1) Following default-free bonds are given: Time to Maturity/ Bond years Coupon rate Price 1 1...

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1) Following default-free bonds are given: Time to Maturity/ Bond years Coupon rate Price 1 1 2% 100,5% 2 2 1% 98,0% 3 3 4% 103,0% 4 4 3% 102,0% a) Calculate the 1-year p.a. forward rate starting in one year! b) Calculate the 1-year p.a. forward rate starting in two years! c) If you believe in market efficiency, what is the message implied by the forward rates calculated in this way? Is there a trading opportunity? d) If you disbelieve in market efficiency, what is the message implied by the forward rates calculated in this way? Is there a trading opportunity? 1) Following default-free bonds are given: Time to Maturity/ Bond years Coupon rate Price 1 1 2% 100,5% 2 2 1% 98,0% 3 3 4% 103,0% 4 4 3% 102,0% a) Calculate the 1-year p.a. forward rate starting in one year! b) Calculate the 1-year p.a. forward rate starting in two years! c) If you believe in market efficiency, what is the message implied by the forward rates calculated in this way? Is there a trading opportunity? d) If you disbelieve in market efficiency, what is the message implied by the forward rates calculated in this way? Is there a trading opportunity?

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Answer Lets break down each part step by step a To calculate the 1year pa forward rate starting in o... View the full answer