What Should the Purchase Price of a 2-Year Zero-Coupon Bond

question 18

Multiple Choice

$\begin{array}{cc}\text { Year } & \text { 1 Year Forward Rate } \\1 & 4.5\% \\2 & 5.2\% \\3 & 5.9\% \\4 & 6.3\% \\5 & 6.8 \% \\6 & 7.0\%\end{array}$
What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

• A) $897.61
• B) $888.33
• C) $883.32
• D) $893.36
• E) $871.80

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Definitions:

Colony

A territory under the immediate political control of a state, distinct from the sovereign territory of that state.

Joint Chiefs of Staff

A body of senior uniformed leaders in the United States Department of Defense who advise the President, the Secretary of Defense, and the National Security Council on military matters.

Korea

A peninsula in East Asia, divided into North and South Korea, each with distinct governments and systems.

Strategic Value

The importance or utility of something in achieving a plan, goal, or objective, especially in a competitive or challenging environment.