$\begin{array}{cc}
\text { Year } & \text { 1-Year Forward Rate } \
1 & 4.6\% \
2 &4.9\% \
3 & 5.2\% \
4 & 5.5\% \
5 &6.8\%
\end{array}$
What should the purchase price of a 5-year zero-coupon bond be if it is purchased today and has face value of $1,000?
A) $776.14
B) $721.15
C) $779.54
D) $756.02
E) $766.32

Question

$\begin{array}{cc}
\text { Year } & \text { 1-Year Forward Rate } \
1 & 4.6\% \
2 &4.9\% \
3 & 5.2\% \
4 & 5.5\% \
5 &6.8\%
\end{array}$
 What should the purchase price of a 5-year zero-coupon bond be if it is purchased today and has face value of $1,000?
A) $776.14
B) $721.15
C) $779.54
D) $756.02
E) $766.32

Quizplus · Accepted Answer

The correct answer is A because the purchase price of a 5-year zero-coupon bond with a face value of $1,000 and a 1-year forward rate of 4.6% is $776.14. This can be calculated using the formula:Purchase price = $1,000 / (1 + 1-year forward rate)^5= $1,000 / (1 + 0.046)^5= $776.14

Year 1-Year Forward Rate 14.6%24.9%35.2%45.5%56.8%\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array} Year 12345​ 1-Year Forward Rate 4.6%4.9%5.2%5.5%6.8%​

$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array}$