Assume that the spot rate for the first year, the forward rate for the second year and the forward rate for the third year are 4.2%, 4.4% and 4.5% respectively. What must the price of a 3 year government non-callable bond with an annual coupon of 6 % be.

Bond	Coupon Rate	Maturity	Market Price
A	3% paid annually	1 year	$998.06
B	4% paid annually	2 years	$1011.49
C	7% paid annually	3 years	$1094.68

Answer rating: 100% (QA)

Spot rate for first year 42 Forward rate for 2nd year 44 1 2year ... View the full answer