What Is the Price of a 2-Year Maturity Bond with a 5

question 46

Multiple Choice

What is the price of a 2-year maturity bond with a 5% coupon rate paid annually? (Par value = $1,000.) Suppose that all investors expect that interest rates for the 4 years will be as follows: $\begin{array}{lr}& \text { Forward } \\\text { Year } & \text { Interest Rate } \\\hline 0 & \text { (today) } 3 \% \\1 & 4 \% \\2 & 5 \% \\3 & 6 \%\end{array}$

• A) $1,092.97
• B) $1,054.24
• C) $1,028.51
• D) $1,073.34
• E) None of the options are correct.

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Definitions:

Established Marketplace

A market or exchange with a long-standing presence, recognized for stable operations and a broad base of users or participants.

Escalator Clause

is a contract provision that allows for an automatic adjustment in prices or wages based on fluctuations in certain economic indicators.

Costs Change

Alterations in the financial expenditures associated with producing or obtaining goods and services.

Indirect Costs

Costs that are not directly accountable to a cost object, such as overhead and administrative expenses.