Zeros and expectations theory Answer: a Diff: T

7A-¹⁴⁸. A 4-year, zero coupon Treasury bond sells at a price of $762.8952. A 3-year, zero coupon Treasury bond sells at a price of $827.8491. Assuming the expectations theory is correct, what does the market believe the price of 1-year, zero coupon bonds will be in three years?

b. $934.58

c. $938.97

d. $945.26

e. $950.47
Zero coupon bond Answer: d Diff: T

7A-¹⁴⁹. Assume that the State of Florida sold tax-exempt, zero coupon bonds with a $1,000 maturity value 5 years ago. The bonds had a 25-year maturity when they were issued, and the interest rate built into the issue was a nominal 8 percent, compounded semiannually. The bonds are now callable at a premium of 4 percent over the accrued value. What effective annual rate of return would an investor who bought the bonds when they were issued and who still owns them earn if they were called today?

b. 6.73%

d. 9.01%