Zero-coupon bond prices are given by B(0,T ),where 0 is today,and T (measured in years)is the bond's maturity date.
-The spot rate f (0,0)and the forward rate f (0,1)are given by:

Question

Zero-coupon bond prices are given by B(0,T ),where 0 is today,and T (measured in years)is the bond's maturity date. 
-The spot rate f (0,0)and the forward rate f (0,1)are given by:

Quizplus · Accepted Answer

Using the formula for the price of a zero-coupon bond in terms of spot rates:
B(0,T) = 1/(1+f(0,T))^T

From this, we can solve for the spot rate as follows:

f(0,T) = (1/B(0,T))^(1/T) - 1

Using the given values for B(0,1) and B(0,2), we get:

f(0,1) = (1/0.961538)^1 - 1 = 0.041667

f(0,2) = (1/0.923077)^0.5 - 1 = 0.043478

Therefore, the best choice is B, which matches these values.

Zero-Coupon Bond Prices Are Given by B(0,T ),Where 0 Is