Question 12 (1 point) One-, two-, and three-year maturity, default-free, zero-coupon bonds have yields to maturity of 0.07%, 0.07%, and {z}%, respectively. What is the implied 1-year forward rate 1 year from today? Your Answer: Answer units Hide hint for Question 12 Invest $1 for 2 years Plan A: invest in a two-year bond, which will result in (1+2-year rate)^2 Plan B: invest in a one-year bond now, reinvest it into another one-year bond next year, resulting in (1+ current 1-year rate)"(1+ 1-year forward rate next year) Plan A and Plan B would be the same, otherwise there is arbitrage opportunity, which will enforce the equality expressed as: (1+ 2-year rate)^2= (1+ current 1-year rate)" (1+ 1-year forward rate next year); Therefore, 1-year forward rate next year= [(1+2-year rate) 2/ (1+ current 1-year rate)] - 1