A One-Year STRIPS Sells at an Interest Rate of 3

question 86

Multiple Choice

A one-year STRIPS sells at an interest rate of 3.15% and a two-year STRIPS sells at an interest rate of 3.88%. What is the implied one-year forward rate? Assume the rates are effective annual rates.

• A)4.44%
• B)4.50%
• C)4.54%
• D)4.57%
• E)4.62%

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Definitions:

Cash Register Overages

The situation where the amount of cash in a cash register exceeds the expected amount based on sales records.

Petty Cash Fund

A small amount of cash kept on hand within a business for minor, day-to-day expenses.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Highly Liquid Investments

Investments that can be quickly converted into cash without a significant loss in value.