Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000.

Maturity (Years) Price

1 $ 976.28

2 $858.39

3 $788.92

4 $721.80

5 $670.48

a. Calculate the forward rate of interest for each year. (Round your answers to 2 decimal places.)

MATURITY(YEARS)

3

4

5

6

b. How could you construct a 1-year forward loan beginning in year 3? (Round your Rate of synthetic loan answer to 2 decimal places.)

Face value

Rate of synthetic loan

c. How could you construct a 1-year forward loan beginning in year 4? (Round your Rate of synthetic loan answer to 2 decimal places.)

Face Value

rate of synthetic loan