Q.N9 The one-year forward rates, deferred ! years, are estimated to be Year () Forward Rate 8% 3 10% 1296 Calculate the spot rate for a zero-coupon bond maturing three years from now. (A) 4% (B) 5% 6% (D) 7% (E) 8% Q. N 10 An insurance company must pay liabilities of 99 at the end of one year, 102 at the end of two years and 100 at the end of three years. The only investments available to the company are the following three bonds. Bond A and Bond Care annual coupon bonds. Bond B is a zero-coupon bond Bond Maturity (in years). Yield-to-Maturity (Annualized) Coupon Rate 1 2 0% 3 9% B 7% All three bonds have a par value of 100 and will be redeemed at par Calculate the number of units of Bond A that must be purchased to match the liabilities exactly. (A) 0.8807 (B) 0.8901 0.8975 (D) 0.9524 (C) (E) 0.9724