Question

You have the following information on three zero coupon bonds: Bond 1: time to maturity: 1...

You have the following information on three zero coupon bonds:

Bond 1: time to maturity: 1 year, face value = $1,000, bond price = $971.58;

Bond 2: time to maturity: 2 years, face value = $1,000, bond price = $925.47;

Bond 3: time to maturity: 3 years, face value = $1,000, bond price = $858.96.

Part A: Calculate the one, two and three year spot rates.

Part B: Calculate the forward rate over the second year and the forward rate over the third year. Round to at least 2 decimals.

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