Exercise 4 The spot rates now are: One-year rate = Two-year rate = Three-year rate = 3.4% 3.97% 4.84% thera The spot rates in one year are expected to be: One-year rate = |4.54% Two-year rate = 5.57% Three-year rate - 5.96% A bond has a face value of $1000 a coupon rate of 6% and matures in three years. 1) Calculate the expected rate of return of this bond (5 pts) (A) 3.4% (B) 3.9% (C) 4.18 % (D) 3.52% 2) Calculate the modified duration of this bond (5 pts) (A) 2.86 (B) 2.71 (C) 3.27 (D) 2.47