Your observations of the bond market have highlighted the following bond prices, as shown in the table below. All the bonds have $1000 face value, pay coupons annually and all have the same calendar day of maturity (which was yesterday) with differing numbers of years remaining.
Description
Current price ($)
1-year
2% coupon
975
2-year
4% coupon
1000
3-year
6% coupon
1100
Estimate the term structure for the next three years (i.e., spot rate for the first year, and the forward rates for the second and third years), assuming the pure expectations hypothesis (PEH) holds.
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