The Following Is a List of Prices for Zero-Coupon Bonds

question 36

Multiple Choice

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. $$\begin{array} { c c } \text { Maturity } & \text { Price } \\\text { (Years) } & \\1 & \$ 943.40 \\2 & 881.68 \\3 & 808.88 \\4 & 742.05\end{array}$$ According to the expectations theory, what is the expected forward rate in the third year?

• A) 7.00%
• B) 7.33%
• C) 9.00%
• D) 11.19%
• E) None of the options are correct.

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Definitions:

Collusion

A secret or illegal agreement or cooperation between parties to limit competition and manipulate prices or market conditions in their favor.

Allocative Efficiency

Refers to a situation in which the resources in an economy are distributed according to consumer preferences, ensuring that goods are produced in the quantities exactly matching consumer desires.

Unit Costs

Unit costs refer to the cost incurred to produce, store, or acquire one unit of a product or service.

Kinked-Demand Curve Model

An economic theory suggesting that in oligopolistic markets, companies may not change their prices because the demand curve is more elastic for price increases and less elastic for price decreases.