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Assume that the spot rate for the first year, the forward rate for the second year and the forward rate for the third year are
Assume that the spot rate for the first year, the forward rate for the second year and the forward rate for the third year are 4.2%, 4.4% and 4.5% respectively. What must the price of a 3 year government noncallable bond with an annual coupon of 6 % be.
Bond | Coupon Rate | Maturity | Market Price |
A | 3% paid annually | 1 year | $998.06 |
B | 4% paid annually | 2 years | $1011.49 |
C | 7% paid annually | 3 years | $1094.68 |
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