Suppose that all investors expect that interest rates for the 4 years will be as follows:

Year	Forward Interest Rate
0		4	%	(today)
1		5	%
2		6	%
3		7	%

If you have just purchased a 4-year zero-coupon bond, what would be the expected rate of return on your investment in the first year if the implied forward rates stay the same? (Par value of the bond = $1,000)

Multiple Choice

• 5%

• 4%

• 6%

• 7%

• None of the options are correct.