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Assume annual compounding. Given only yields on one-, two-, and three-year zero-coupon government bonds, which of...

Assume annual compounding. Given only yields on one-, two-, and three-year zero-coupon government bonds, which of the following interest rates cannot be computed? Assume all loans are risk-free. Group of answer choices

The rate on a one-year loan that begins at the end of Year 1

The rate on a two-year loan that begins at the end of Year 2

The rate on a two-year loan that begins at the end of Year 1

The rate on a one-year loan that starts at the end of Year 2

Solutions

Expert Solution

Given the 1, 2 and 3-year zero yields, the following rates can be computed using implied rates :

  • The rate on a one-year loan that begins at the end of Year 1
  • The rate on a two-year loan that begins at the end of Year 1
  • The rate on a one-year loan that starts at the end of Year 2

However, the rate on a two-year loan that begins at the end of Year 2 cannot be computed because the 4-year zero yield is required to compute the same.

jeff jeffy answered 2 years ago
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