Suppose that the following forward rates are observed as of today

Year Forward Rate

1 5%

2 7%

3 8%

1. a) What should be the current selling price of a 3year bond making annual payments of $90 with par value $1,000? [a]

2. b) Without calculation, will the bond price increase or decrease after one year if forward rates stay unchanged? [b] {increase, or,

   decrease}

3. c) If forward rates remain unchanged, what will be the price of the bond at the end of first year? [c]