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

question 30

Multiple Choice

A one-year STRIPS sells at an interest rate of 3.20 percent and a two-year STRIPS sells at an interest rate of 3.90 percent.What is the implied one year forward rate? Assume the rates are effective annual rates.

• A) 4.20 percent
• B) 4.30 percent
• C) 4.40 percent
• D) 4.50 percent
• E) 4.60 percent

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Definitions:

Comprehensive Income

The total change in equity for a reporting period other than from transactions with owners, including all unrealized gains and losses.

Warranty Expenses

Costs incurred by a company to repair or replace products under warranty, recognized as a liability when products are sold.

Inventory Purchases

The total cost incurred to buy goods intended for sale during a specific accounting period before any deductions or sales.

Actuarial Estimates

Actuarial estimates are calculations done by actuaries to predict future liabilities, expenses, and life expectancies, often for use in insurance and pension plans.