The Following Is a List of Prices for Zero-Coupon Bonds

question 2

Multiple Choice

The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. What is, according to the expectations theory, the expected forward rate in the third year

• A)7.23%
• B)9.37%
• C)9.00%
• D)10.9%

---

Definitions:

Amortized Loan

A loan with scheduled periodic payments that consist of both principal and interest, designed to pay off the debt over a set period.

Effective Rate

The actual interest rate an investor receives or pays on a financial product, factoring in the effects of compounding.

Amortization Schedule

A table detailing each periodic payment on an amortizing loan, including breakdowns of principal and interest.

Amortizes Loans

Loans for which periodic payments are made that include both interest and principal, gradually reducing the outstanding balance.