$\begin{array}{cc}
\text { Year } & \text { 1-Year Forward Rate } \
1 & 4.6\% \
2 &4.9\% \
3 & 5.2\% \
4 & 5.5\% \
5 &6.8\%
\end{array}$
What should the purchase price of a 2-year zero-coupon bond be if it is purchased today and has face value of $1,000?
A) $966.87
B) $911.37
C) $950.21
D) $956.02
E) $945.51

Question

$\begin{array}{cc}
\text { Year } & \text { 1-Year Forward Rate } \
1 & 4.6\% \
2 &4.9\% \
3 & 5.2\% \
4 & 5.5\% \
5 &6.8\%
\end{array}$
 What should the purchase price of a 2-year zero-coupon bond be if it is purchased today and has face value of $1,000?
A) $966.87
B) $911.37
C) $950.21
D) $956.02
E) $945.51

Quizplus · Accepted Answer

The purchase price of a 2-year zero-coupon bond can be calculated using the formula $P = \frac{F}{(1+r)^n}$, where $P$ is the purchase price, $F$ is the face value, $r$ is the annual interest rate, and $n$ is the number of years. For a 2-year bond with a face value of $1,000 and a 1-year forward rate for the second year of 4.9%, the calculation is $P = \frac{1000}{(1+0.049)^2}$, which equals approximately $911.37.

Year 1-Year Forward Rate 14.6%24.9%35.2%45.5%56.8%\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array} Year 12345​ 1-Year Forward Rate 4.6%4.9%5.2%5.5%6.8%​

$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array}$