A one-year zero-coupon bond yields 4.0%. The two- and three-year zero-coupon bonds yield 5.0% and 6.0% respectively. The one-year spot rate r(1) = 5% and the forward price for a one-year zero-coupon bond beginning in one year is 0.9346. The spot price of a two-year zero-coupon bond is closest to:

A. 0.87.
B. 0.89.
C. 0.93.

Ans: B. 0.89.

Business

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