Suppose That There Are Three Zero Coupon Bonds with Maturity

question 53

Multiple Choice

Suppose that there are three zero coupon bonds with maturity date 1 year, 2 year and 3 year respectively. The current price of the 1 year, 2 year and 3 year bonds respectively are $826.45, $718.18 and $640.66 respectively. The yield to maturity of the first year bond is:

• A) 21%.
• B) 18%.
• C) 12%.
• D) 11%.

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Definitions:

Independent Trials

Refers to experiments or processes in which the outcome of any given trial does not affect the outcomes of future or past trials.

Probability of Success

The likelihood of achieving a desired outcome or event.

Binomial Distribution

A probability distribution that represents the number of successes in a set number of independent binary (success/failure) experiments.

Consecutive Trials

Successive attempts or tests carried out to achieve a particular result, where each trial follows the previous one without interruption.