Question: a) Determine the forward rate from year 1 to year 2 (f2), as well as the forward rate from year 2 to year 3 (f3)

a) Determine the forward rate from year 1 to year 2 (f2), as well as the forward rate from year 2 to year 3 (f3)

b) From the end of year 2 to the end of year 3, what will the spot rate be?

c) Given the given term structure, what is the current price of a $1000 20-year bond with 3 years to maturity? Assume that the bond has a 4 percent annual coupon rate (paid annually) assume the bond has just made a coupon payment and has 3 coupon payments left.

Years to maturity	Spot rate	Forward rate
1	6.14%	...
2	6.72%	F2
3	7.35%	F3

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