Assuming Annual Compounding, the Prices of a One-Year 4% Coupon

question 22

Multiple Choice

Assuming annual compounding, the prices of a one-year 4% coupon bond and a two-year 5% coupon bond are $101 and $99, respectively. Assume coupons are paid annually. The fair price of a two-year 6% coupon bond will be

• A) $99.86
• B) $100.11
• C) $100.57
• D) $100.87

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Definitions:

Simple Linear Regression

A statistical method for understanding the relationship between two quantitative variables -- one predictor (independent variable) and one response (dependent variable) by fitting a linear equation.

Subpopulation Mean

The average value of a specific subset of a population, used in statistical analysis to compare groups.

Normally Distributed

Describes a bell-shaped curve distribution where most observations cluster around the central peak and the probabilities for values further away from the mean taper off equally in both directions.

Explanatory Variable

A variable that is manipulated or categorized to investigate its effect on a response variable in research.