The following table depicts current market conditions (assume annual compounding): Year Current spot rates (r.) Implied...

 
  

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The following table depicts current market conditions (assume annual compounding): Year Current spot rates (r.) Implied 2-year forward rate (f2+) 3 2.40% 4 2.60% 5 2.70% 6 2.90% N/A 7 4.00% N/A (a) Calculate implied 2-year forward rate. (b) According to your analysis on the market condition, propose two strategies using only zero coupon bonds in order to take advantage of changes of the yield curve. (c) Assume that the yield to maturity of a zero coupon bond is equal to the current spot zero rates in corresponding years to maturity. Calculate the price and the duration of bonds which you will use for the strategies. The following table depicts current market conditions (assume annual compounding): Year Current spot rates (r.) Implied 2-year forward rate (f2+) 3 2.40% 4 2.60% 5 2.70% 6 2.90% N/A 7 4.00% N/A (a) Calculate implied 2-year forward rate. (b) According to your analysis on the market condition, propose two strategies using only zero coupon bonds in order to take advantage of changes of the yield curve. (c) Assume that the yield to maturity of a zero coupon bond is equal to the current spot zero rates in corresponding years to maturity. Calculate the price and the duration of bonds which you will use for the strategies.