1. Calculate the forward rate for one year, one year from now f1,1.2.

2. Calculate the forward rate for one year, two years from now f1,2.

3. Calculate the forward rate for two years, one year from nowf2,1.

4. Price a bond with a face value equal to 1000$, an annual coupon rate of 8%, and maturity equal to 3 years.

5. Given the price you got in (4) would you expect the yield-to-maturity for the bond to be over, below, or equal to the coupon rate? Why?

Suppose that the yield curve for the next 3 years is given by there are no liquidity premia): Maturity Spot Rate 1 6% 2 8% 3 10%