Suppose that all investors expect that interest rates for the 4 years will be as follows: $\begin{array}{ll}
\text { Year } &\text { Forward Interest Rate }\
0 & 4\% \text { (today) } \
1 & 5\% \
2 & 6\%\
3&7\%
\end{array}$
What is the price of a 3-year zero-coupon bond with a par value of $1,000?
A) $896.83
B) $863.92
C) $772.18
D) $765.55
E) None of the options are correct.

Question

Suppose that all investors expect that interest rates for the 4 years will be as follows: $\begin{array}{ll}
\text { Year } &\text { Forward Interest Rate }\ 
0 & 4\% \text { (today) } \
1 & 5\% \
2 & 6\%\
3&7\%
\end{array}$
 What is the price of a 3-year zero-coupon bond with a par value of $1,000?
A) $896.83
B) $863.92
C) $772.18
D) $765.55
E) None of the options are correct.

Quizplus · Accepted Answer

The Answer is B

Suppose That All Investors Expect That Interest Rates for the 4