Suppose That All Investors Expect That Interest Rates for the 4

question 50

Multiple Choice

Suppose that all investors expect that interest rates for the 4 years will be as follows: $$\begin{array} { l | l | } \hline \text { Year } & \text { Forward Interest Rate } \\\hline 0 & \text { (today) } 5 \% \\\hline 1 & 7 \% \\\hline 2 & 9 \% \\\hline 3 & 10 \% \\\hline\end{array}$$
-If you have just purchased a 4-year zero coupon bond,what would be the expected rate of return on your investment in the first year if the implied forward rates stay the same?(Par value of the bond = $1,000)

• A)5%
• B)7%
• C)9%
• D)10%
• E)none of the above