The Following Is a List of Prices for Zero-Coupon Bonds $\begin{array}{cc}\text { Maturity }\\\text { (Years) } & \text { Price } \\1 & \$ 943.40 \\2 & 881.68 \\3 & 808.88 \\4 & 742.09\end{array}$

question 15

Multiple Choice

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. $\begin{array}{cc}\text { Maturity }\\\text { (Years) } & \text { Price } \\1 & \$ 943.40 \\2 & 881.68 \\3 & 808.88 \\4 & 742.09\end{array}$ According to the expectations theory, what is the expected forward rate in the third year?

• A) 7.00%
• B) 7.33%
• C) 9.00%
• D) 11.19%
• E) None of the options are correct.

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Definitions:

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s cost.

Markup Percentage

The fraction applied on top of the buying price of products to include expenses for overhead and yield a profit.

Markup Percentage

The percentage by which the cost of a product is increased to determine its selling price.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and labor.