Problem:
The spot rate for three hypothetical zero-coupon bonds (zeros) with maturities of one, two and three years are given in the following table (based on annual compounding).
|
Maturity(T)
|
1
|
2
|
3
|
|
Spot rates
|
r(1)=11%
|
r(2)=10%
|
r(3)=9%
|
Required:
Question 1: Calculate the forward rate for a one-year zero in one year, f (1,1).
Question 2: Calculate the forward rate for a one-year zero in two years, f (2,1).
Question 3: Calculate the forward rate for a two-year zero in one year, f (1,2).
Question 4: Calculate the price for a 3-year treasury bond with par value of $1,000 and having a 5% coupon rate paid annually.
Note: Provide support for your rationale.