Suppose That All Investors Expect That Interest Rates for the 4

question 20

Multiple Choice

Suppose that all investors expect that interest rates for the 4 years will be as follows: $\begin{array}{lr}& \text { Forward } \\\text { Year } & \text { Interest Rate } \\\hline 0 & \text { (today) } 6 \% \\1 & 7 \% \\2 & 9 \% \\3 & 10 \%\end{array}$ 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 options are correct.

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