What risk-free interest rate does the market expect


Problem

A bankruptcy-free coupon bond with an annual coupon and a maturity of 4 years is traded on a market. The bond has a nominal amount of SEK 100,000 and pays out a coupon of SEK 1,700. According to market expectations, the risk-free rate is expected to be 2.08% in the first 3 years. What risk-free interest rate does the market expect in the final year if the bond is priced at an interest rate (YTM) of 1.70%?

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Accounting Basics: What risk-free interest rate does the market expect
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