Suppose that all investors expect that interest rates for the 4 years will be as follows: What is the price of a 2-year maturity bond with a 5% coupon rate paid annually (Par value = $1,000.)
A)$1,092.97
B)$1,054.24
C)$1,028.51
D)$1,073.34
E)None of the options

Question

Suppose that all investors expect that interest rates for the 4 years will be as follows:  What is the price of a 2-year maturity bond with a 5% coupon rate paid annually (Par value = $1,000.)
A)$1,092.97 
B)$1,054.24 
C)$1,028.51 
D)$1,073.34 
E)None of the options

Quizplus · Accepted Answer

[(1.03)(1.04)]^1/2 - 1 = 3.5%; FV = 1,000, n = 2, PMT = 50, i = 3.5, PV = $1,028.51.

Suppose That All Investors Expect That Interest Rates for the 4