Simone would like to invest a certain amount of money for three years and considers investing...
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Simone would like to invest a certain amount of money for three years and considers investing in a one-year bond that pays 5 percent. Simone would then like to buy a second one-year bond that is expected to pay the one-year forward rate one year from now, and finally a third one-year bond that is expected to pay the one-year forward rate two years from now. (Hint: Assume that 2-year bonds and 3-year bonds both yield 9.000%.) If the annualized interest rate on a three-year bond is 9 percent, the forward rate of a one-year security beginning two years from now is percent. Simone would like to invest a certain amount of money for three years and considers investing in a one-year bond that pays 5 percent. Simone would then like to buy a second one-year bond that is expected to pay the one-year forward rate one year from now, and finally a third one-year bond that is expected to pay the one-year forward rate two years from now. (Hint: Assume that 2-year bonds and 3-year bonds both yield 9.000%.) If the annualized interest rate on a three-year bond is 9 percent, the forward rate of a one-year security beginning two years from now is percent.
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