Given a spot rate structure of 3%, 4.02%, and 5.07% for 1 to 3 years,

(A) What is the price of a 3-tear 5% annual coupon bond using the spot rates above? (2 points)

(B) What would be the one year forward rates for year 1m 2m and 3 if interest rate volatility is assumed to be zero? (4 points)

(C) Using the forward rates to value a 3-year 5% bond puttable in years 2 and 3 at a put price of 98, what is the value of the put embedded in the bond? (6 points)

(Notice that for this question, a forward rate is projected for each future period, no interest rate volatility is assumed, and as a result, there is only one bond value at each time period at which the issuer will decide whether to exercise the put option.)