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Suppose That All Investors Expect That Interest Rates for the 4

Question 3

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Suppose that all investors expect that interest rates for the 4 years will be as follows:  Year  Forward Interest Rate 0 (today)  5%17%29%310%\begin{array} { c r } \text { Year } & \text { Forward Interest Rate } \\\hline 0& \text { (today) } 5 \% \\1 & 7 \% \\2 & 9 \% \\3 & 10 \%\end{array}
What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)


A) $1,092.97
B) $1,054.24
C) $1,000.00
D) $1,073.34
E) none of these

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