On May 23, 20XX, the Existing or Current (Spot) One-Year

question 25

Multiple Choice

On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows:
₁R₁ = 5.25%,
₁R₂ = 5.75%,
₁R₃ = 6.25%,
₁R₄ = 6.45%
Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon Treasury bonds for year 4 as of May 23, 20XX?

• A) 5.925 percent
• B) 6.45 percent
• C) 7.05 percent
• D) 10.32 percent

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Definitions:

Investment

The allocation of resources, typically money, into ventures, stocks, or assets with the expectation of generating a profit.

Types of Saving

Various forms in which individuals or entities can save their money, such as bank deposits, investments, or pension funds.

Corporate Bonds

Debt securities issued by corporations to fund their operations, expansions, or projects, carrying a promise to return the principal along with agreed-upon interest payments.

Bondholders

Individuals or entities that hold debt securities issued by corporations or governments, entitled to receive interest payments and the return of principal.