You are an investment consultant working for a superannuation firm. One of the fixed-income portfolio managers wants to understand more about managing interest rate risk in the portfolio, and she is particularly interested in understanding the concept of duration. The portfolio currently contains option free bonds but the manager is considering adding bonds with embedded options into the portfolio. The manager is also considering purchasing a three-year 8% annual coupon paying bond.

A. Using the par rates for annual coupon sovereign debt in the table below and bootstrapping method to obtain the zero coupon curve.

1-year	2.3%
2-year	3.4%
3-year	4.3%

B. What is the value of the option free bond that is being considered for purchase?

C. Establish the maximum Macaulay duration of an option-free fixed-rate bond with 3 years remaining until maturity? Carefully explain your answer.