The markets expectation for future interest rates is a topic that you are very interested in. You have noticed that current spot rates on 3-year money are 2.65% and current spot rates on 5-year money are 3.5%. What is the market predicting for the rate on 2-year money, two years from now?

Multiple Choice

• 5.25%

• 3.65%

• 4.79%

• 2.41%

2)

A 7-year, $1,000 face bond with a 5% coupon is currently selling with a 6% YTM (yield to maturity). What is the purchase price of the bond?

Multiple Choice

• $967.18

• $932.18

• $929.18

• $944.18

3)

Now assume that you purchase the bond in the Question #14 above. Immediately after you purchase the bond, the reinvestment rate in the market drops to 5%. What is your realized yield on your bond investment?

Multiple Choice

• 3.65%

• 6.45%

• 5.87%

• 4.36%