$1,000 par value zero-coupon bonds (ignore liquidity premiums)

The expected 2-year interest rate 3 years from now should be ________.

A) 9.55%
B) 11.74%
C) 14.89%
D) 13.73%

Zero-Coupon Bonds

Bonds that do not pay periodic interest payments and are issued at a discount to their face value, maturing to its full face value.

Expected Interest Rate

The interest rate investors anticipate receiving on an investment over a specific period, taking into account the risk of the investment.