Your parents shared a portion of their Retirement Benefits to you and your siblings when the retired. You invested your portion of your share in a 5 years bond whose face value is k1000, coupon rate is 10% and the initial spot rate extracted from the Zero coupon bond is 10%. You purchased your bond at a discount of K890 and you want to determine the expected future rates (spots rates) that will maintain you discount price. Calculate the expected spot rate for the 2^ND year of holding the bond investment.

a.

10.00%

b.

21.00%

c.

17.30%

d.

14.18%

The Central Bank of Zambia In August 2020 cut its benchmark interest rate by 125 bps to 8%. What was the decrease in percentage form and the initial policy rate before the decrease?

a.

Decrease; 0.125% Initial policy rate; 8.01%

b.

Decrease; 12 .5% Initial policy rate; 9%

c.

Decrease; 1.25% Initial policy rate; 8.1%

d.

Decrease; 125% Initial policy rate; 18%