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 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)
A) $1,092
B) $1,054
C) $986
D) $1,103
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 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)
A) $1,092
B) $1,054
C) $986
D) $1,103
E) None of the options are correct.

Quizplus · Accepted Answer

The Answer of 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 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)
A) $1,092
B) $1,054
C) $986
D) $1,103
E) None of the options are correct.

Suppose That All Investors Expect That Interest Rates for the 4