What should be todays yield to maturity on a 3-year 8


Suppose you observe the following for today's term structure for risk-free securities:

Effective Annual YTM

1-year zero-coupon bond 3.8%

2-year zero-coupon bond 3.6%

3-year zero-coupon bond 3.4%

a. Suppose you believe that the term structure next year will be the same as today's term structure. If today you buy the 3-year zero coupon bond, what do you expect your holding period return will be between now and one year from today?

b. What should be today's yield to maturity on a 3-year, 8% annual coupon risk-free bond? (Express as accurate as 1.234%)

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Financial Management: What should be todays yield to maturity on a 3-year 8
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