Question: Do not use excel. Show all working formulas and variables. 3. Yield rates to maturity for zero-coupon bonds are currently quoted at annual effective rates

Do not use excel. Show all working formulas and variables.

Do not use excel. Show all working formulas and variables. 3. Yield

3. Yield rates to maturity for zero-coupon bonds are currently quoted at annual effective rates of 8% for a one-year maturity, 9% for a two-year maturity, and 10% for a three-year maturity. Calculate the current prices for three bonds with maturity values of $1000 each and maturity dates 1, 2 and 3 years from now. Calculate the annual effective forward rate for year two and the annual effective forward rate for year three implied by current yields of these bonds. [3 marks]

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