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Suppose That All Investors Expect That Interest Rates for the 4

Question 2

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Suppose that all investors expect that interest rates for the 4 years will be as follows:  Forward  Year  Interest Rate 0 (today)  6%17%29%310%\begin{array}{lr}& \text { Forward } \\\text { Year } & \text { Interest Rate } \\\hline 0 & \text { (today) } 6 \% \\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
B) $1,054
C) $1,000
D) $1,073
E) None of the options are correct.

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