Suppose you observe the following zerocoupon bond prices per

Suppose you observe the following zero-coupon bond prices per $1 of maturity payment: 0.94153 (1-year), 0.89862 (2-year), 0.87004 (3-year). Compute the 3-year effective annual zero-coupon bond yield.

a. 4.75%

b. 3.90%

c. 3.29%

d. 14.94%

e. 8.22%

Suppose you observe the following zero-coupon bond prices per $1 of maturity payment: 0.94420 (1-year), 0.87836 (2-year), 0.81379 (3-year). Compute r₀(2,3), the 1-year implied forward rate for year 3.

a. 6.57%

b. 7.93%

c. 16.03%

d. 5.32%

e. 8.50%

Solution

at year rate will be find by below equation

1 = .87004 * (1 + r3)^3

r3 = 4.75%

For next question

1 = .87836 * (1 + r2)^2

r2 = 6.7%

1 = .81379 * (1 + r3)^3

r3 = 7.11%

r(2,3) = 7.11%*3 - 6.7%*2 = 7.93%