An Investor Considers the Purchase of a 2-Year Bond with a 5

question 39

Multiple Choice

An investor considers the purchase of a 2-year bond with a 5% coupon rate, with interest paid annually. Assuming the sequence of spot rates shown below, the price of the bond is Closest to:
$\begin{array} { l c } \hline \text { Time-to-Maturity } & \text { Spot Rates } \\\hline 1 \text { year } & 3 \% \\2 \text { years } & 4 \% \\\hline\end{array}$

• A) 101.93.
• B) 102.85.
• C) 105.81.

---

Definitions:

Investor

An individual or organization that allocates capital with the expectation of earning a financial return.

Corporation

A legal entity that is separate from its owners, providing them with limited liability, and recognized as a person under law that can enter into contracts, own assets, and be sued.

Partner's Liability

The legal responsibility of a partner in a partnership for the debts and obligations of the partnership.

Torts

Legal wrongs committed by one party against another, leading to civil legal liability and compensation claims, not arising from contractual obligations.