Suppose That All Investors Expect That Interest Rates for the 4

question 14

Multiple Choice

Suppose that all investors expect that interest rates for the 4 years will be as follows: $$\begin{array} { l | l | } \hline \text { Year } & \text { Forward Interest Rate } \\\hline 0 & \text { (today) } 5 \% \\\hline 1 & 7 \% \\\hline 2 & 9 \% \\\hline 3 & 10 \% \\\hline\end{array}$$
-What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

• A)$1,092
• B)$1,054
• C)$1,000
• D)$1,073
• E)none of the above

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