The prices for four 1000 face amount zero-coupon bonds are as follows:
| Price | Term (in years) |
|---|---|
| 943.40 | 1 |
| 747.26 | 5 |
| 558.39 | 10 |
| 311.80 | 20 |
Determine which of the following statements describes the yield curve underlying these prices.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Solution: B
All prices imply an interest rate of 6% indicating that the yield rate does not change with duration, that is. the yield curve is flat.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.