The YTM on a 1-year zero-coupon bond is 6%, and the YTM on a 2-year zero-coupon bond is 4%. Consider a 2-year coupon bond with a face value of $100 and a coupon rate of 8%.



a. The bond price is P=?(answer the closest integer).

b. If the Expectations Hypothesis holds, the expected price of the bond in a year is P=? (answer the closest integer).

c. If instead the Liquidity Preference theory holds and the difference between the 1-year forward rate and the expected future 1-year rate is 1%, the expected price of the bond in a year is P=? (answer the closest integer)

Answer rating: 100% (QA)

a To calculate the bond price we need to find the present value of the future cash flows The bond pa... View the full answer