Prices of zero-coupon bonds reveal the following pattern of forward rates: Year Forward Rate 1 6 %
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Question:
Prices of zero-coupon bonds reveal the following pattern of forward rates:
Year | Forward Rate | |
1 | 6 | % |
2 | 8 | |
3 | 9 | |
In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $50 with par value $1,000.
d. If you forecast that the yield curve in 1 year will be flat at 9.0%, what is your forecast for the expected rate of return on the coupon bond for the 1-year holding period? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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