Based on the below spot rates, the

of a $3$ year, $8\%$ annual pay bond is

closest to:

$-$ Year $1$ Spot Rate: $3\%$

$-$ Year $2$ Spot Rate: $5\%$

$-$ Year $3$ Spot Rate:

A$.$ USD $1,000\mathrm{.}00$

B$.$ USD $1,044\mathrm{.}31$

C$.$ USD $1,086\mathrm{.}52$

$6\mathrm{.}5\%$

Correct Answer: Choice B

Computing the above bond price using spot rates:

$80801080$

$(1+3\%)1+(1+5\%)2+(1+6\mathrm{.}5\%)3=77\mathrm{.}67+72\mathrm{.}56+894\mathrm{.}08$

$=1,044\mathrm{.}31$