Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 1 2 3 4 % (today) 5 % 6% 7% If you have just purchased a 4-year zero-coupon bond, what would be the expected rate of return on your investment in the first year forward rates stay the same? (Par value of the bond = $1,000)
Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 1 2 3 4 % (today) 5 % 6% 7% If you have just purchased a 4-year zero-coupon bond, what would be the expected rate of return on your investment in the first year forward rates stay the same? (Par value of the bond = $1,000)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose that all investors expect that interest rates for the 4 years will be as follows:
Year Forward Interest Rate
0
1
2
3
●
4 % (today)
●
5 %
If you have just purchased a 4-year zero-coupon bond, what would be the expected rate of return on your investment in the first year if the implied
forward rates stay the same? (Par value of the bond = $1,000)
Multiple Choice
●
6 %
5%
● 4%
6%
7%
None of the options are correct.
7 %
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