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:

Epidermis

The outermost layer of cells covering an organism, particularly the surface epithelium of the skin or outer layer of leaves and other plant organs.

Parenchyma

A type of living plant tissue consisting of relatively unspecialized cells with thin cell walls that function in photosynthesis, storage, and as the site of many metabolic processes.

Tracheids

Tracheids are elongated cells in the xylem of vascular plants that serve in transport and structural support, facilitating the flow of water.

Xylem

The vascular tissue in plants that conducts water and dissolved nutrients from the roots to the rest of the plant and provides structural support.