Problem 3 Bookmark this page Problem 3(a) 0.0/4.0 points (ungraded) Consider a frictionless market, with discount bonds of all maturities. The current yield curve is given in the following table (all rates are annual): Maturity Spot rate 1-Year 2.3 % 2-Year 3-Year 4.1 % 5.6 % (a) Compute the one-year forward rate between years 2 and 3. 96 Save Submit You have used 0 of 2 attempts Problem 3(b) 0.0/6.0 points (ungraded) (b) Suppose that your bank was able to enter into a forward contract with a client. According to the contract, you will sell the client a two-year bond ABC with the annual coupons paid at the rate of 6%, a year from now. Note that the client receives the bond immediately after the coupon payment a year from now, so the first coupon the client collects is two years from now. The principal payment of the bond is $100. What is the arbitrage-free forward price for this contract? dollars Save Submit You have used 0 of 2 attempts Problem 3(0) 0.0/6.0 points (ungraded) (C) Suppose that you've signed a contract with the client with the forward price for the ABC bond to be delivered equal to $101.2. What is the NPV of this transaction for your bank as of time 0? dollars Save Submit You have used 0 of 2 attempts Problem 3(d) 0.0/4.0 points (ungraded) (d) Suppose the Expectations Hypothesis holds. What is the time-o expectation of the price of the ABC bond to be delivered at time 1? dollars Save