In: Finance
a. Assuming that the expectations hypothesis is
valid, compute the expected price of the four-year zero coupon bond
shown below at the end of (i) the first year; (ii) the second year;
(iii) the third year; (iv) the fourth year. (Do not round
intermediate calculations. Round your answers to 2 decimal
places.)
Beginning of Year Price of Bond
1. 950.90
2. 899.97
3. 877.62
4. 785.26
b. What is the rate of return of the bond in years
1, 2, 3, and 4? Conclude that the expected return equals the
forward rate for each year. (Do not round intermediate
calculations. Round your answers to 2 decimal
places.)