The table shows bond maturities for china. Use the expectations hypothesis to calculate and predict interest rates as follows:
A, If the one-year interest rate is expected to be the same as the yield curve over the next three years, what interest rate is expected on a two-year bond one year from now?
B, What interest rate is expected on a three-year bond one year from now? C, What relationship do you find between interest rates and maturity?
D, If investors attach term premiums of 2.5%, 1.75% and 2.85% to the one-, two- and three- year bonds: i. What would be the interest rate on a two-year security? ii. What would be the interest rate on a three-year security? iii. What is the forward rate for one-year Canada bonds one year from now? iv. What is the adjusted forward rate for one-year Canada bonds one year out?
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