You are given the following term structure for interest rates.

Term Annual Spot Interest Rates

1. 7%

2. 8%

3. 9%

(please do not use excel)

(a) Compute the one year forward rates on [0,1], [1,2], and [2,3].

(b) A bond has par amount 1000, term to maturity 3 years, and annual coupon rate 6% payable annually. Assume the above term structure is correct.Calculate the value of the bond at t= 0.

(c) Calculate the annual effective yield-to-maturity for the bond if the bond is soldat a price equal to its value.