a. 2-year $100 Treasuries paying an annual coupon of $5 are trading at a rate of 5% per year (so priced at par). 2-year Zero-coupon bonds are trading at 5.1% per year. What rate would a one year zero trade at, and consequently what is the forward rate going from year 1 to year 2?

b. You bought a three year 10% annual coupon paying bond at par. Using Modified Duration, estimate the price of the bond if rates were to decrease 2%. Show your math. Is this bond more or less sensitive to movements in interest rates for a three year zero-coupon bond on this part, math is not necessary so just explain? You bought a three year 10% annual coupon paying bond at par. Using Modified Duration, estimate the price of the bond if rates were to decrease 2%. Show your math. Is this bond more or less sensitive to movements in interest rates for a three year zero-coupon bond on this part, math is not necessary so just explain?