Suppose That a Bond That Will Mature in Two Years

question 61

Multiple Choice

Suppose that a bond that will mature in two years has a face value of $1000 and 20% coupon rate. The one year spot market interest rate is 13% and the expected second period's forward rate is 12%. According to the expectation hypothesis, the two year spot rate is:

• A) 11%
• B) 9%
• C) 12.49%
• D) 7%

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Definitions:

Business Model

A strategic plan outlining how a company creates, delivers, and captures value in economic, social, cultural, or other contexts.

Market Success

The achievement of desired sales, profit margins, and market share goals within a targeted market or industry.

Dummy Corporation

An entity created to serve as a front or to conceal the true nature of a business transaction, often for legal or financial reasons, without engaging in any real business activities.

Financial Losses

The negative impact on an entity's finances, typically resulting from poor investment decisions, business failures, or unforeseen expenses.