The table below shows market prices for four zero coupon bonds with four different terms: one,two,three and four years.The bonds all have a face value of $1,000.Which line best represents the yield curve derived from the bond prices in the table? Use the letter labels at the end of each line.
Zero Coupon Bond Prices

Question

Quizplus · Accepted Answer

Step 1 - Compute the yield for Year 1. k = 11ea7fdb_fbfc_90f1_a768_8de1fc648ad5_TB2902_11 - 1 970.8738 = 11ea7fdb_fbfc_90f2_a768_d3dbf3ef5007_TB2902_11 K₁ = 3% Step 2 - Compute the yield for Year 4. 822.7025 = 11ea7fdb_fbfc_b803_a768_c35197a3300b_TB2902_11 K₄ = 5% The curve is upward sloping. Line C starts at 3% and ends at 5%.

The Table Below Shows Market Prices for Four Zero Coupon