Consider the following treasury spot rate curve

Time to maturity Spot Rate

1 year 3.000%

2 years 4.020%

3 years 5.069%

Use a binomial interest rate tree with the following rates to value a three-year, 3% annual-pay

option-free Treasury bond with a R100 par value. (3)

One-Period Forward Rate in Year

0 1 2

3% 5.7883% 10.7383%

3.8800% 7.1981%

4.8250%