Question: Need This Done Very Soon A one year zero coupon bond has a yield to maturity of 5%, a two year zero couponbond has a

Need This Done Very Soon

A one year zero coupon bond has a yield to maturity of 5%, a two year zero couponbond has a yield to maturity of 6%, and a three year zero coupon bond has a yield tomaturity of 7%. Assume that the pure expectations hypothesis of the term structure iscorrect.

(a) Compute the one year implied forward rates, i.e. computef2andf3.

b) If market expectations are accurate, what will be the yield on a two year zerocoupon bond, one year from now?

(c) Suppose you buy a three year zero coupon bond today, and sell it in one year. Thebond has a face value of$1,000. If market expectations are accurate, what is theholding period return on the bond?

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