Exercise 4 The spot rates now are: One-year rate = Two-year rate = Three-year rate = 3.03% 3.78% 4.29% The spot rates in one year are expected to be: One-year rate = 4.54% Two-year rate = 4.93% Three-year rate = 5.27% A bond has a face value of $1000 a coupon rate of 5.5% and matures in three years. 1) Calculate the expected rate of return of this bond (5 pts) (A) 3.19% (B) 3.58% (C) 3.91 % (D) 3.03% 2) Calculate the modified duration of this bond (5 pts) (A) 2.18 (B) 2.5 (C) 1.86 (D) 2.73