A Two-Year STRIPS Sells at an Interest Rate of 4

question 62

Multiple Choice

A two-year STRIPS sells at an interest rate of 4.84 percent and a three-year STRIPS sells at a rate of 4.97 percent. What is the implied one year interest rate two years from now? Assume the rates are effective annual rates.

• A) 5.23 percent
• B) 5.36 percent
• C) 5.41 percent
• D) 5.45 percent
• E) 5.50 percent

---

Definitions:

Matrices

Rectangular arrays of numbers, symbols, or expressions arranged in rows and columns that are subject to specific mathematical rules.

Implement

To put into effect or action; to execute a plan, agreement, or method.

Evaluate

The process of making a judgment or forming an opinion about something after careful consideration of its merits and demerits.

Define

To explain the meaning of a word, phrase, or concept.