6 789 10 Moving to another question will save this response. KQuestion 6 of 10 Q

Question

6 789 10 Moving to another question will save this response. KQuestion 6 of 10 Question 6 5 points Save Answer Suppose the term structure of interest rates for risk-free zero-coupon bonds is as follows: Term Rate (EAR)96 What is the fair price of a risk-free investment that pays $1,000 at the end of Years 1, 2, and 3, and given that 1 year 2 year 3 year 4 year 5 year 4.00 3.50 3.00 2.50 2.00 price, what is the single rate of interest that could be used to fairly value this annuity? Choose the best answer. a. $2.80 1.64 3.34% -b. $2,810.19; 3.50% C. $2,828.61; 3.00% d, $2,820.14; 3.16% e, $2,810.19; 3.3496

Explanation / Answer

1) Year Cash flow 1 $1000/1.04^1 $961.54 2 $1000/1.0350^2 $933.51 3 $1000/1.03^3 $915.14 Fair Price $2,810.19 2) Year Cash Flow 0 -$2,810.19 1 $1,000.00 2 $1,000.00 3 $1,000.00 IRR 3.34% Option e is correct.

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