On May 23, 20XX, the Existing or Current (Spot) One-Year

question 25

Multiple Choice

On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows:
₁R₁ = 5.25%,
₁R₂ = 5.75%,
₁R₃ = 6.25%,
₁R₄ = 6.45%
Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon Treasury bonds for year 4 as of May 23, 20XX?

• A) 5.925 percent
• B) 6.45 percent
• C) 7.05 percent
• D) 10.32 percent

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Definitions:

Contract Price

The price agreed upon in a contract for the purchase or sale of an asset, service, or other commodity.

Lbs.

Abbreviation for pounds, a unit of weight measurement.

Orange Juice

A beverage made from the extraction or pressing of the natural liquid contained in orange fruits.

Troy Ounce

A unit of measure for precious metals that is approximately 31.1 grams, differing from the standard ounce which is 28.35 grams.