Calculate the holding period return of an investment in bond C after one year assuming that the assumptions of the „pure expectation hypothesis“

Calculate the holding period return of an investment in bond C after one year assuming that the assumptions of the „pure expectation hypothesis“ will prevail in one year.

expectation-hypothesis

[Note: Calculate first the price of bond C based on the forward rates in one year and then compare the result with the initial investment and coupon. Use a forward rate in one year for 1 and 2 years of 3% in case you didn’t solve question a3).

calculate-the-holding-period-return-of-a-bond-using-calculated-bond-price-based-on-the-forward-rates-in-one-year holding-period-return-calculation

The price of bond C in 1 year (with 2 years time to maturity) based on forward rates as assumed by pure expection hypothesis can be calculated as follows.calculate-the-holding-period-return-of-a-bond-using-calculated-bond-price-based-on-the-forward-rates-in-one-year-2

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