Suppose That All Investors Expect That Interest Rates for the 4

question 63

Multiple Choice

Suppose that all investors expect that interest rates for the 4 years will be as follows: $\begin{array}{lc}\text { Year } & \text { Forward Interest Rate } \\0 & \text { (today) } 3\% \\1 & 4\% \\2 & 5\% \\3 & 6\%\end{array}$
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) 5%
• B) 3%
• C) 9%
• D) 10%
• E) None of the options are correct.

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Definitions:

Total Manufacturing Cost

The aggregate expenses involved in making a product, including raw materials, direct labor, and overhead costs.

Job Costing System

An accounting method used to track costs and profitability of individual jobs or projects, allowing for precise control and reporting of expenses.

Process Costing System

A method of accounting that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process, to products by averaging them over units of output.

Downstream Costs

Costs incurred after the production phase, such as distribution and marketing expenses, as well as after-sales service costs.