$\begin{array}{cc}\text{ Year }& \text{ 1 Year Forward Rate }\\ 1& 4.5\%\\ 2& 5.2\%\\ 3& 5.9\%\\ 4& 6.3\%\\ 5& 6.8\%\\ 6& 7.0\%\end{array}$
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

Zero-coupon Bond

A debt security that does not pay interest (coupon) but is traded at a deep discount, providing profit at maturity when the bond is redeemed for its face value.

Purchase Price

The amount of money paid to buy goods, services, or assets.

Forward Rate

The agreed-upon price for a financial transaction that will occur at a future date, commonly used in foreign exchange and fixed income markets.