Given the Yield on a 3 Year Zero-Coupon Bond Is

question 16

Multiple Choice

Given the yield on a 3 year zero-coupon bond is 7% and forward rates of 6% in year 1 and 6.5% in year 2,what must be the forward rate in year 3?

• A)7.2%
• B)8.6%
• C)8.5%
• D)6.9%
• E)none of the above.

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Definitions:

Reorganization

A comprehensive restructuring of a company's business, legal, or ownership structure, often aimed at improving profitability or efficiency.

Interest Earned

The income received from investments in securities such as savings accounts, certificates of deposit (CDs), bonds, or loans.

Insolvent Company

A company that is unable to pay its debts as they come due, or whose liabilities exceed its assets in value.