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compare your answer to the solutions you found in problem 16 what does this tell you 664819

Forward Interest Rates According to the pure expectations theory of interest rates, how much do you expect to pay for a five year STRIPS on February 15, 2009? How much do you expect to pay for a two year STRIPS on February 15, 2011?

Forward Interest Rates This problem is a little harder. Suppose the term structure is set according to pure expectations and the maturity preference theory. To be specific, investors require no compensation for holding investments with a maturity of one year, but they demand a premium of .30 percent for holding investments with a maturity of two years.

Given this information, how much would you pay for a one year STRIPS on February 15, 2009? What is the corresponding implied forward rate? Compare your answer to the solutions you found in Problem 16. What does this tell you about the effect of a maturity premium on implied forward rates?

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