What Should the Purchase Price of a 2-Year Zero-Coupon Bond

$\begin{array}{cc}\text { Year } & \text { 1 Year Forward Rate } \\1 & 4.5\% \\2 & 5.2\% \\3 & 5.9\% \\4 & 6.3\% \\5 & 6.8 \% \\6 & 7.0\%\end{array}$
What should the purchase price of a 2-year zero-coupon bond be if it is purchased at the beginning of year 2 and has face value of $1,000?

A) $897.61
B) $888.33
C) $883.32
D) $893.36
E) $871.80

Correct Answer:

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