You observe the following discount bond prices Br (relative to par value $100) at time 0: T (years from now) 1 2 3 BT $97.0 $94.1 $91.0 i.e., you pay $97.0 now in exchange for $100 one year from now (T = 1), etc. (i) Compute the two-year forward rate (in percent per annum) for a loan that runs between years 1 and 3. (10 points) 3 Suppose you want to lend $1m for one year starting two years from now, 1.e., from year 2 (T = 2) to year 3 (T = 3). Demonstrate the transactions needed to set up the forward loan and the resulting net cash flows, assuming you can borrow and lend at the bond prices above. Transactions: (20 points) Time 0 Time 1 Time 2 Time 3 Net cash flows: (20 points) Time 0 Time 1 Time 2 Time 3