Year Forward Interest Rate

0 (today) 5%

1 7%

2 9%

3 10%

If you have just purchased a 4-year zero coupon bond, what would be the expected rate of return on your investment in the rst year if the implied forward rates stay the same? (Par value of the bond = $1,000) A. 5% B. 7% C. 9% D. 10%