The Yield Curve Is Flat at 6% Per Annum

question 2

Multiple Choice

The yield curve is flat at 6% per annum.What is the value of an FRA where the holder receives interest at the rate of 8% per annum for a six-month period on a principal of $1,000 starting in two years? All rates are compounded semiannually.

• A) $9.12
• B) $9.02
• C) $8.88
• D) $8.63

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Definitions:

Annual Dividend

A distribution of profits to shareholders by a corporation, typically done annually.

Growth of Dividend

The increase in the amount of dividend payments issued by a company over time, reflecting its growing profitability and cash flow.

Cumulative Voting

A voting system that allows shareholders to concentrate all their votes on a single candidate for the board of directors.

Common Stock

Shares entitling their holder to dividends that vary in amount and may even be missed, in contrast with preferred stock.