Suppose that all investors expect that interest rates for the 4 years will be as follows:

Year Forward Interest rate

0 (today) 5%

1 7%

2 9%

3 10%

What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

Answers:

$1,054

$1,000

$1,092

$1,073

None of the options

Please show step by step calculations. Thank you!