Consider investment in three STRIPS (M-100), the first STRIPS matures in six months, the second STRIPS...
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Consider investment in three STRIPS (M-100), the first STRIPS matures in six months, the second STRIPS matures in 12 months, the third STRIPS matures in 18 months. The price of the first STRIPS is 98:12 (so y₁ = 1.6518 %), the price of the second STRIPS is 96:20 (so y₂ = 1.7315%), and the price of the third STRIPS is 94:26 (y3 = 1.7915%). Based on the spot rates above, calculate the implied forward rates fit and f Assume the unbiased Expectations Theory holds, so E(y) = fit and E(y2) = ff. Also, assume that realized future spot rates match the expectations: y = fit and y2 = ft. Calculate the one- period realized rates of return on the three STRIPS (i.e., buy the bond today and sell it six months later) Consider investment in three STRIPS (M-100), the first STRIPS matures in six months, the second STRIPS matures in 12 months, the third STRIPS matures in 18 months. The price of the first STRIPS is 98:12 (so y₁ = 1.6518 %), the price of the second STRIPS is 96:20 (so y₂ = 1.7315%), and the price of the third STRIPS is 94:26 (y3 = 1.7915%). Based on the spot rates above, calculate the implied forward rates fit and f Assume the unbiased Expectations Theory holds, so E(y) = fit and E(y2) = ff. Also, assume that realized future spot rates match the expectations: y = fit and y2 = ft. Calculate the one- period realized rates of return on the three STRIPS (i.e., buy the bond today and sell it six months later)
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