Due to a recession, expected inflation this year is only 2.75%.However, the inflation rate in Year 2 and thereafter is expected tobe constant at some level above 2.75%. Assume that the expectationstheory holds and the real risk-free rate (r*) is 1.5%. If the yieldon 3-year Treasury bonds equals the 1-year yield plus 1.0%, whatinflation rate is expected after Year 1?
Madsen Motors's bonds have 24 years remaining to maturity.Interest is paid annually, they have a $1,000 par value, the couponinterest rate is 6%, and the yield to maturity is 8%. What is thebond's current market price?
