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

question 7

Multiple Choice

Given the yield on a 3-year zero-coupon bond is 7% and forward rates of 6% in year 1 and 6.5% in year 2, what must be the forward rate in year 3?

• A) 7.2%
• B) 8.6%
• C) 8.5%
• D) 6.9%

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Definitions:

Validity

The extent to which a test or instrument measures what it is supposed to measure.

Predictive Ability

The capacity to accurately forecast future events or outcomes based on current or past information.

Correlation

A statistical measure that indicates the extent to which two or more variables fluctuate together.

Physiological Measures

Indicators or readings obtained from the body to assess physical condition or functioning, often used in medical and psychological research.