Given the Yield on a 3-Year Zero-Coupon Bond Is 7

question 5

Multiple Choice

Given the yield on a 3-year zero-coupon bond is 7.2% and forward rates of 6.1% in year 1 and 6.9% in year 2, what must be the forward rate in year 3?

• A)8.4%
• B)8.6%
• C)8.1%
• D)8.9%

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Definitions:

Debt Investments

Investments made by purchasing debt instruments, such as bonds, where the investor becomes a creditor to the issuer.

Journal Entries

Recorded transactions in the accounting journal that show the financial activities of a company.

Marketable

Describes assets or securities that can easily be sold or converted into cash without a significant loss in value.

Cash Dividend

A payout from the company's profits, determined by the board of directors, given to certain shareholders as cash.