Suppose That All Investors Expect That Interest Rates for the 4

question 47

Multiple Choice

Suppose that all investors expect that interest rates for the 4 years will be as follows: $\begin{array}{ll}\text { Year } &\text { Forward Interest Rate }\\ 0 & 4\% \text { (today) } \\1 & 5\% \\2 & 6\%\\3&7\%\end{array}$ 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)

• A) 4%
• B) 5%
• C) 6%
• D) 7%
• E) None of the options are correct.

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Definitions:

Process Costing

A method of costing used to ascertain the cost of a product at each process or stage of manufacture.

Weighted-Average Method

An inventory costing method that assigns a weighted average cost to each unit of inventory on hand.

Equivalent Unit

An accounting measure used to compute the number of units produced during a reporting period, converting partially completed units into an equivalent number of fully completed units.

Equivalent Units

A concept used in process costing that converts work-in-process inventory to a number of fully finished units.