You want to invest in a risk-free investment for the next 3 years. You can invest in a 3-year zero coupon bond or you can invest in a 1-year zero coupon bond now, then in one year from now invest in a 2- year zero coupon bond. The spot interest rate on the 3-year bond is 3.25%. The spot interest rate on the 1-year bond is 2%. What spot interest rate do you expect to earn on a 2-year bond in one year from now?
You want to invest in a risk-free investment for the next 3 years. You can invest in a 3-year zero coupon bond or you can invest in a 1-year zero coupon bond now, then in one year from now invest in a 2- year zero coupon bond. The spot interest rate on the 3-year bond is 3.25%. The spot interest rate on the 1-year bond is 2%. What spot interest rate do you expect to earn on a 2-year bond in one year from now?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- You want to invest in a risk-free investment for the next 3 years. You can invest in a 3-year zero coupon bond or you can invest in a 1-year zero coupon bond now, then in one year from now invest in a 2- year zero coupon bond. The spot interest rate on the 3-year bond is 3.25%. The spot interest rate on the 1-year bond is 2%. What spot interest rate do you expect to earn on a 2-year bond in one year from now?
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